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Investing strategies

Sticking to time-tested investing principles can be tough but technology can help

8 minute read
February 15, 2024
Investing strategies
How to invest
Vanguard values
Asset mix
Automatic investing

While many factors determine your investing outcomes, 4 time-tested principles can improve your chances of investment success:

No matter how easy the steps seem, it can be hard to stick to a plan. That's why choosing a firm with a digital experience that incorporates these principles can help you stay on course throughout your investing journey. A robust digital experience will help you stay focused on your long-term investing goals, provide valuable insights along the way, and give you the best chance for investment success.  

Establish your goals

The first principle is to create clear, appropriate investing goals. Defining your financial goals is paramount since knowing them can help you choose the right investments. Do you have a long-term goal like saving for retirement? Or do you want to use your money sooner to buy a home? Are you prepared if there's an emergency? Anchoring your goal may sound simple but determining how to start investing can be overwhelming. Luckily, many digital tools exist to guide you.

For example, there are many types of investment accounts, so understanding your goals can help you choose the account that's right for you. Not sure where to begin? Digital tools such as a quick-start tool can help you narrow down your choices and identify some of the decisions you need to make to get on your way.

Stay balanced

Starting your investing journey with distinct goals will allow you to determine the right asset allocation—the mix of investments that'll help you reach your goals. A road map can help determine the route you want to take toward your destination. That road may have a lot of bumps and curves, but creating a route you'll stick with is critical to success. It's important to understand your risk tolerance and create a plan that's designed for your investing time horizon. A digital tool like an investor questionnaire considers your investment objectives, experience, time horizon, risk tolerance, and financial situation to suggest an asset allocation that may best fit your investing strategy.

Once your journey begins, it's important to review your portfolio regularly to make sure your asset allocation hasn’t veered off track during market fluctuations. If you already invest with Vanguard, you can check your asset mix periodically with the Portfolio Watch tool when you're logged in to your Vanguard account. 

Portfolio Watch is one of the most powerful, interactive tools we offer through our digital experience. Portfolio Watch helps you understand your asset mix, diversification of investments, and the effects of expense ratios and taxes on your costs. Understanding these 3 elements is key to following Vanguard’s Principles for Investment Success, and we make it easy for you to do. There are distinct levels of diversification analytics, and you also have access to a ‘What if’ tool to see the potential effect on your portfolio before making a trade.

—Ed Campagna, CFP®, Senior Financial Advisor

—Marco De Freitas, Head of Vanguard Personal Investor Client Experience

Keep costs low

While markets and financial returns may be unpredictable, one thing you can control is costs, specifically taxes and investment expenses.

An investment firm that prioritizes its investors should strive to keep costs low. But managing the tax efficiency of your portfolio is also important. Understanding how taxes affect your costs is critical to your portfolio's long-term performance, and a digital experience that surfaces relevant tax information in the moments that matter can help you make more informed decisions. There are different ways to improve tax efficiency, such as maximizing tax-advantaged accounts and asset location. Another is the cost basis method used when selling securities, particularly in nonretirement accounts. Choosing the right cost basis method when trading online in your portfolio can help lower your investing costs.

For example, Vanguard introduced MinTax to all clients last year as a cost basis method available for mutual funds, ETFs (exchange-traded funds), and stocks. This method automatically selects shares in an attempt to identify the most favorable tax rate for sales. It's easy to select when you're logged in to your online investment account and you can set it as a default at the fund level. 

Since introducing the MinTax cost basis method to our clients last year, approximately 20% of trades used this method, resulting in millions in tax savings for our investors.

—Ed Campagna, CFP®, Senior Financial Advisor

—Maria Bruno, Senior Financial Planning Strategist

Simply put, managing for tax efficiency through your online account is easy to do and can help you to hold on to more market returns.1

Be disciplined

Making regular contributions to your accounts, staying invested during volatile times, and rebalancing to keep the right asset allocation are all components of discipline. One way investors save for retirement is by contributing to an IRA, but did you know you can start contributing to your IRA up to 15 months before the tax-filing deadline? Automatic investments or reminders from your digital investing platform can help you manage this. 

We found that 5 out of 7 clients hold an IRA, but the majority don’t contribute regularly. We saw this as a real opportunity to help our clients understand the impact of not doing so. For the 2023 tax year, we reached out to clients during tax season, when IRA contributions are top of mind, and were able to help an additional 15,000 clients invest in their IRAs, boosting their collective savings by over $50 million.

—Ed Campagna, CFP®, Senior Financial Advisor

—Maria Bruno, Senior Financial Planning Strategist

Setting up automatic investments online ensures that you consistently contribute to your accounts so it's one less thing that you need to remember to do. When you set up automatic investments, you can choose to contribute a certain dollar amount or automatically maximize your contributions based on the IRS limits for a particular year. If you choose to maximize contribution limits and they're raised, you won't need to go back and update your amounts—Vanguard will do it for you. 

Created with your best interest in mind

Starting your investing journey and sticking to it can be overwhelming, but technology aligned to time-tested investing principles not only helps you get started but also helps you stay on track throughout your journey. While you can't predict volatility or fluctuations in the markets, taking control of what you can when it comes to your goals—a balanced portfolio, costs, and discipline—can lead to successful investing outcomes.

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1We recommend that you consult a tax or financial advisor about your individual situation.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.