Taking control of your finances can be a source of great pride. Keeping your cool when the markets plunge and remaining calm when they surge seems nearly impossible to the uninitiated.
The possibility of your life savings evaporating before your eyes may preclude you entirely from entrusting your money with fund managers. Rest assured: investing needn’t be so risky or so worrisome.
There’s no reason to be scared of managing your wealth. Throwing away your money on speculative stocks or letting your cash slowly decay in a savings account are much more careless actions than investing carefully in stocks and bonds. In fact, non-participation and, in some cases, even passive investment, may be detrimental to the economy itself.
But, how might you go about both investing and sleeping soundly simultaneously? Empowering yourself with knowledge. Namely, the knowledge of portfolio management.
Here are 4 tips for managing your investment portfolio:
1. Start early
As legendary American investor and businessman Warren Buffett said, “Someone's sitting in the shade today because someone planted a tree a long time ago.” Building wealth does not happen overnight. It takes sustained commitment to the craft of mindful investing. Unfortunately, only about 52% of Americans have money invested in the stock market, according to Gallup. This is a missed opportunity. And, although, it’s never too late to begin using investment vehicles, it’s best to start early in your working years. You’ll have time to rebound from mistakes, bear markets, and errors in judgement.
If you are young now, retirement age may seem infinitely far away. You may ask when it is appropriate to start saving. Unequivocally, the answer is as soon as you possibly can. Substantial wealth, wealth you’ll need to live comfortably after your working years have passed, requires decades of growth. Begin now while your financial commitments are relatively low and your vitality is high. Starting young is key to ensuring a successful financial future.
2. Sustain commitment
Simply investing in your retirement plan is a good step. In order for your retirement account to be truly beneficial to you, you’ll need to practice discipline. Resisting temptation to spend excess cash on nonessential items or luxury goods is nearly half the battle when investing independently. Religiously stow away a portion of your monthly income specifically for your investments. Otherwise, growth will remain anemic. Setting aside as little as $100 each month can invigorate your portfolio.
Benjamin Graham described diversification as a very well established “tenet of conservative investing.” If maximizing your profits and your risk is your goal, then you’ll find diversification unsatisfactory. Generally, however, diversification is a good strategy for beginners and seasoned investors alike.
Diversification lowers risk by spreading out your investments across a variety of industries and investment vehicles. This way, if there’s a major downturn in one stock, you won’t be affected catastrophically. Along with public and private stocks, you typically have corporate or government bonds as well. U.S. Treasury Bonds are an exceptionally safe bet with a relatively high return, for example.
4. Keep learning
As the markets change, you’ll have to revisit your investments and redistribute your funds. You’ll need to tune up your portfolio by rebalancing it, even if you’ve set up an almost entirely automated one. Reassessing your investments requires staying up-to-date on market trends, activities and projections.
You’ll want to acquire a deeper knowledge of where your money is going and how it is growing. Letting your money sit without your supervision is a mistake. Handling your investments in a capricious or ignorant fashion is even worse. Stay devoted to learning the most you can by reading reputable investing magazines, news sites and blogs, like Bloomberg and The Motley Fool.
Investing is fraught with perils. Committing yourself to learning from your mistakes will make all the blunders worth it, however. Starting young can help you learn what investing strategies work for you, whether you’re more suited toward entrusting a fund manager with index funds, speculating your own stocks, or relying solely on fixed-income investment vehicles is something you’ll learn about yourself as time goes by. It’s just as American author and analyst Barry Ritholtz once said, “When it comes to investing, there is no such thing as a one-size-fits-all portfolio.”
Starting as early as you can will help you become a better investor and make certain you’ll have the wealth you need by the time you reach old age. Sustain your commitment to financial security, and remember to invest strategically. Be careful with your investments, consult financial advisors and continually research and reassess your investment decisions. Managing money is certainly no easy task, but it’s one well worth the energy you expend on it.
Michael Volkmann is an entrepreneur with a focus on business operations and finance. He has worked with many small businesses helping them with their M&A for over 6 years.
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