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By Jason Stipp and Christine Benz | 11-21-2013 03:00 PM

Sticking to Your Plan: 5 Strategies

Setting up automation, putting your plan in writing, and tilting conservative can help keep your portfolio on track to meet your goals, says Morningstar's Christine Benz.

Jason Stipp: I'm Jason Stipp for Morningstar. It's Investor Starter Kit special report week on Morningstar.com, and today we're talking about monitoring your portfolio, and specifically tips to help you stick with your portfolio plan in good times and bad.

Here to offer insights on that is Morningstar's Christine Benz, our director of personal finance.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: It can be difficult to stick to a plan, because we know the markets can be quite volatile, but setting certain expectations mentally, and maybe even setting some guardrails, can help you before you get going.

You have five tips on that today and the first one is an interesting one, where you have more tools now to help you, and it's automation.

Benz: That's right. Investors in 401(k) plans have known for years that they can automate their investments, just dribble their money in every other week or whenever they get paid, whatever schedule they choose, and that is increasingly an option for other investment account types as well. Mutual funds, even that you might own in a brokerage account, will let you do this, where you are putting your money in at regular intervals using a fixed sum. That does add a lot of discipline to the investment process, which can tend to lead to good outcomes.

You can also take advantage of automatic rebalancing in 401(k) plans. I'm also seeing this pop up as a feature that's available for people outside of 401(k) plans, so people who have IRAs, for example, with a given fund company. So that's another tool, perhaps, to take advantage of, if you want to try to get yourself out of the decision-making process. If you've reviewed how you've done with decision-making at [market] inflection points, and determined that you're not so good at it, extract yourself from it by taking advantage of some of these tools.

Stipp: Rebalancing in general means you're selling things that have gone up and probably buying things that have gone down, which is a difficult psychological decision to make. You say if this is something that you really want to be truly hands-off with, target-date funds can be a good option for you.

Benz: That's right. Target-date funds are the funds that get more conservative as you get closer to your retirement date or your goal date. They do periodically rebalance back to the target asset allocation. They get more conservative over time, but they're typically selling whatever has been performing really well, and buying what hasn't performed as well. So, back in late 2008, early 2009, even though most investors did not feel like buying equities, if you had a target-date fund or some sort of balanced fund even, the fund was doing it for you. So it helps you override your own worst behavioral instincts. A lot of investors felt like selling stocks at that point. Their balanced or target-date funds were actually stepping up and doing some buying.

Stipp: We have the data, actually, that would seem to suggest this kind of automatic activity does pay off for investors.

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