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There’s a lot to ask yourself when you start investing beyond your retirement account: How much money should I allocate? What types of investments should I make?
But one investing pro says the most important questions new investors need to ask themselves are, “What am I trying to achieve?” and “What are the financial goals for this?” This is according to Cullen Roche, author of Your Perfect Portfolio, which comes out January 6.
And Roche should know. His career as a financial adviser has spanned more than 20 years – most recently as the founder and chief investment officer of Discipline Funds, a low-fee financial advisory firm focused on teaching people the value of being disciplined with their finances.
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One key aspect of staying disciplined is to be able to control emotions, something that’s not always easy for novice investors.
“The stock market is not where you get rich,” Cullen told me when we sat down to discuss his new book. “That’s not to say that you can’t get wealthy, but the way to really get rich over time is with your human capital.”
And this human capital, he explains, is the wealth we build through our careers, not by investing in the stock or bond markets. In a world filled with volatile meme stocks and TikTok videos of quick turnaround wins, it’s easy for new investors to get disillusioned with how the stock market works.
But these big, quick returns are not reality, Roche says. Most folks, he points out, don’t include inflation and fees in returns. Once you do so, you’re left with a much lower average return than commonly perceived.
“Thinking your portfolio will do more than it realistically can is a fast track to frustration and poor results,” Roche writes in Your Perfect Portfolio. “Reality is that the stock market can go through sustained periods of negative or low returns, and the returns you eat are the real, real returns net of inflation, taxes, and fees.”
It’s because of this that investors of all stripes need to be prudent and thoughtful about what they are doing with their hard-earned savings.
Set realistic goals
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As easy as it is to talk to Roche about financial planning, it’s just as easy to read Your Perfect Portfolio. Over my nearly two decades writing about the stock market, I’ve read plenty of investing books that were quickly bogged down by jargon or difficult concepts. Those were a major turnoff for me, so I can only imagine how easily dismayed novice investors who want to grow their savings beyond what they’re putting in their 401(k) plan are from some of these books.
But one of the things that stood out for me in Your Perfect Portfolio was how Roche offers advice in an easily digestible format and lays out more than 20 different types of portfolios for investors to learn about and match to their own specific goals.
And this is where defining what you are trying to achieve through investing and what your financial goals are is so critical. Saying you want to get rich as soon as possible will likely set you up for failure, says Roche. Rather, people need to lay out structured goals across different time frames.
This can be difficult for new investors, he notes, because many younger folks don’t necessarily have the mindset of saving for life events such as having kids or buying a home. But, as Roche writes in his book, “In the end, what we’re all striving for is having enough money to be able to pay for things in the future.”
To help define objectives, it’s important for new investors to sit down with a financial adviser. And once realistic goals are set, the two parties can discuss portfolio construction.
Picking your perfect portfolio
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One advantage younger investors have is time, says Roche. They don’t necessarily have too many life events they need to plan for in the early stages of their investing journey, which allows them to take more risk. Their main goals will likely be: How can I optimize my savings, save more prudently and manage my budget.
And the strategies Roche dissects in Your Perfect Portfolio allow both rookie and seasoned investors to pick and choose from the ones that match their goals. And, he says, it’s OK to stack or adjust these portfolios based on your needs over time.
As Roche writes, the 60/40 Portfolio is simple, highly diversified and low-cost. However, it’s not as diversified as other portfolios, so depending on your needs, you may need to combine it with another strategy.
Another option for younger investors is the Forward Cap Portfolio, which “skates to where the puck is going,” says Roche. In other words, it allocates your assets based on expected future market capitalizations of macroeconomic trends.
There’s plenty of risk involved in this 100% stock portfolio, but for novice investors with a long time frame who are able to stomach the ups and downs of the market, it’s a viable option. However, Roche advises that investors who use it should have exposure to other assets in their portfolios.
Maintain realistic expectations in 2026
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The ability to stay nimble with portfolio construction will serve investors well in the new year, says Roche.
“It’s the weirdest time to be an investor,” he states. And when I asked Roche what he expects to happen to the market in 2026, his two-word answer – “who knows?” – seems to sum up the uncertainty well.
There’s so much conflict and economic risk, he says, and nobody knows what’s going to happen with interest rates or the new Federal Reserve chair.
But, as he concludes, that’s the importance of maintaining realistic expectations and having lots of different portfolio options to help you navigate what’s going on. “Going into the year with a more diversified portfolio is the most sensible way to approach the uncertainty.”
