Managing an investment portfolio is similar to taking care of a business. You need to take a proactive, patient and disciplined approach to preserve your wealth and achieve financial independence.
The good news is that building and managing a portfolio isn’t too difficult. You just need proper guidance and the right habits to keep your investments in tip-top shape.
Here are best practices that help you take care of your investment money effectively:
1. Come up with Solid Investment Goals and Strategies
Goals are the number one driver of your investments. They will help you decide how to manage your portfolio, when you should sell your investments and what stocks or assets you should purchase.
Here are a few guide questions that will help you create an investment goal:
• What am I saving or investing my money for?
• What resources will I need to help achieve my financial goals?
• When will I need to access my funds?
• How long will I invest my money?
Your responses to these questions will help you form a solid investment strategy.
Pro-tip: take note that investment goals can change over time. Make sure you evaluate how these changes will affect your overall strategy.
2. Put Your Money Only in Assets that You Fully Understand
Understanding where you put your funds is an important rule you should follow when investing. You don’t necessarily have to be an investing guru, but you should at least know where you’re parking your money and how that fund will grow over time. You don’t simply put your money on Amazon stocks, a fad Cryptocurrency and other popular investment venues, then call it a day.
If you’re a newbie investor, you should first learn how an investment works. If you’re investing in a stock, for instance, familiarize yourself with common stock market terminologies, such as bull, bear, bid/ask price, rallies and corrections. When investing in bonds, learn the relevant investment terms, such as interest and coupon rate. You need to know these common terms before you dive into these asset classes.
Then, get a good grasp on how various geopolitical issues and economic conditions will affect your investment. You could, for instance, research how oil prices will affect the stocks you buy. Another suggestion is to determine if your investment will hold water during an economic or political crisis.
By taking the time to invest in assets you understand, you avoid making impulsive decisions. What’s more, you worry less about things you don’t know and channel more of your resources into assets that will help you secure a bright financial future.
3. Diversify Your Investments
Just like how a balanced diet can help you stay healthy, a diverse mix of investments can mitigate risks and allow your funds to weather fluctuations in price and market instability. This means not placing all your eggs in one basket. Instead of putting all your money on one asset class, diversify your investments by allocating portions of your funds on the stock market, bonds, mutual funds and other options.
4. Invest Your Money for the Long Term
Investing isn’t a sprint. It’s a marathon. Having a long-term horizon on your portfolio is a vital ingredient for investment success. Never get swayed by short-term volatility or the ebb and flow of the market. Instead, pick an investment strategy that works for you and stick with it.
5. Monitor Your Investments Regularly
You don’t need to watch your portfolio on an hourly basis. You do, however, need to check your investments from at times to find out if you need to do some rebalancing.
Start by signing up for a daily digest or a newsletter on your stocks. You could also set up mobile alerts or notifications when a particular stock or investment reaches a target price.
Tracking your investment regularly will help you oversee your portfolio and prepare you to jump into action when necessary.
6. Rebalance Your Investment Portfolio Periodically
Your investments may fall out of sync over time. If this happens, make sure that you reassess and restructure your portfolio allocation. This involves making calculated decisions on a particular stock or asset class. This also entails getting rid of investments to help you cut losses.
Take note, though, that there’s no fixed time to rebalance. Many experts, however, suggest that you do this at least once a year.
7. Keep Your Investment Costs to a Minimum
As much as possible, place your investment money in a discount brokerage firm. This will help you save on management fees and commission expenses.
The art of managing an investment portfolio may seem daunting at first glance. These seven tips, however, will help you reach your financial goals and retire comfortably.