4 Pro Tips To Manage Your Investment Portfolio
KEYWORD PHRASES – investment portfolio management tips
Investments, a heavy word, comprises of various money-saving tools and strategies aimed to obtain financial independence. But, if investing was that simple, every individual could have become a millionaire. Young people rarely understand that importance of investing and skip this essential aspect of financial management when planning for the future. And, those who do, young and old, most often fail to succeed with it. Investing is not any art, which requires you to have the talent to excel in it or get trained. Success in investments comes with practice, patience, discipline, and continuous review of your investment portfolio. Yes, there are strategies, but without these qualities and strong portfolio management, you can fail.
The importance of portfolio management cannot be undermined. Life and markets undergo constant change. The goal you have today may be replaced by something else tomorrow. Similarly, the stocks of a company that looks promising on the exchange may turn out to be unproductive tomorrow. If your investment portfolio is not in accordance with your goals and the market conditions, then chances of success reduce.
Successful portfolio management requires a proactive and disciplined approach to help you protect your finances and also attain financial independence. Whatever your investment strategy, there are certain basic principles that apply to it that can help you maximise your returns.
Here are certain investment portfolio management tips to bear in mind to achieve success through investments:
Start Early and Go Slow and Steady
As mentioned before, many young adults overlook the importance of investing early. But, investing from an early age brings you many benefits. You get a longer time span to learn and acquaint yourself with investments. Additionally, you also get time to experiment with different investment strategies and ride out risks to maximise your returns. You can invest in various assets like stocks, bonds, real estate, index funds, and more. When you start investing, make sure you stick to the products you understand. It is important to not rush when you commence investing. Dollar cost averaging method of investing a fixed amount each month in a mixed portfolio of assets can be a great option to start with. You can keep a fixed amount aside each month and span out your investments in the assets you understand. Once you gain confidence, you can move on to riskier investments.
Diversify, Diversify, Diversify
The importance of having a diversified portfolio cannot be overlooked when investing. As the saying goes, ‘you should not put all eggs in one basket.’ Imagine, you bought stocks of a company named XYZ. You put all your money (say $10k) into buying this company’s stocks and bonds. Now, one fine day, this company goes bankrupt. You must have guessed by now the result of your investments.
Since you hardly got any returns on your investments, you ran into a loss. If you would have divided the same amount and invested different asset categories of different companies, you could have reduced the risk of loss and ensured steady returns.
It is imperative to create an investment portfolio that exposes you to different asset classes. Furthermore, you must diversify your money within an asset class or category. For instance, if you’re investing in stocks, invest a specific amount in stocks of different companies, instead of putting all your money in a single firm. Make sure to not put more than 4% of your total portfolio into an individual stock. The more you diversify the better you chance of success.
Regularly Rebalance Your Portfolio
Asset allocation is a term that refers to allocating your investments across different asset classes with the aim of balancing risks and rewards. When you start investing you should set a certain percentage of your money to be put into different asset classes. Say for example, you have $10K and you put 50% in shares and 50% in bonds. As and when you progress, you need to review your portfolio and rebalance this percentage to make sure you keep churning good returns.
Market conditions can have a huge impact on the value of your investments. And, this can have an impact on your current portfolio. Say for instance, the value of your stocks appreciated by 20% and the value of your bonds stay stagnant. Considering this, you now have $6000 worth of stocks and $5000 worth of bonds. To rebalance, you need to sell $500 worth of stocks to buy the same amount of bonds. To make it simple, with rebalancing you are minimising risk exposure. It is recommend to do this 6 monthly or yearly.
Maintain Discipline
To achieve financial freedom through investments, you have to be discipline with your investments. Skipping to invest, failing to monitor your investment portfolio and getting carried away with some success or good market condition is the biggest mistakes people make. And, as a result, you fail to succeed with investing. Remember that investment is not a sprint. It’s best to go slow, stay patient, and not get demotivate by past performances or get excite and flow with the good market conditions. Sticking to your plan is essential. You should also ensure that your investment portfolio aligns with your objectives all the time.
Having a well-maintained portfolio is a key to successful investing. So, keep these basic portfolio management tips in mind, and you are good to go.
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