Discipline is one factor that is required in colossal quantities while investing, however managing a portfolio is a separate task altogether which requires thorough planning. Building an ideal portfolio also relies on an investor’s risk-taking abilities, goals and income.
Investors should also consider several points before they commence investing. Read 5 key points to effectively manage a well-rounded portfolio;
Gauge your risk appetite
Before beginning to invest, an investor should be sure whether or not he is willing to take risks or if it’s the other way round. Market volatility is measured by the level of risk tolerance of a particular investor. One who has moderate risk tolerance and would invest in large-cap stocks; opposed to high risk wherein one would choose to invest in small-cap stocks.
Little is good, too much is bad
A well-rounded portfolio is based on its optimum diversification. A variety of assets perform over varying time frames. Also, within asset classes, sub-sets rise and fall accordingly. Risk appetite decreases as you progress ahead in 5 to 10 years. Diversification of the portfolio is necessary but not over-diversification. A popular saying ‘Don’t put all your eggs in one basket’ is an indicator that a diversified portfolio is what helps you to achieve your financial goal but an over-diversified does the exact opposite. A focused curated portfolio with less number of stocks is the most suited.
Play the balancing act
A very important step towards managing a portfolio is to periodically revisit your portfolio. This way one can observe weather or not a particular asset is performing or not. The performance of the assets should be in line with the conditions of the market and if not, it defeats the purpose of intending to build a portfolio in the first place. In case, any asset class has been unsuccessful in delivering the expected return, one can always re-shuffle the portfolio.
Track it, but don’t panic
Many a times it could be possible that market fluctuations can have a considerable impact on the portfolio. Other times, investors have the habit to incessantly review their portfolio and panic on insignificant market movements. It is strongly recommended that investors should stay invested regardless of any short-term volatility until they achieve their financial goals. It is advisable that investors should keep a track of their portfolio but not to an extent where their observation leads to irrational or emotional behaviour as it is suggestible to avoid incessant portfolio reviewing and stick to tracking it perhaps, once a year.
Seek professional solution
For a new investor or an investor with some basic understanding of investments, it could be quite a task to assess their portfolio and manage the same with efficacy. Even experienced investors who are not able to make time to analyse their portfolio seek professional guidance and assistance to manage their portfolio. Professional help could be of several kinds, one being where financial advisors or financial planners charge a sum as fee for managing the portfolio.
