It’s no secret that the stock market can be a risky place. That’s why it’s important to carefully manage your investment portfolio. A well-diversified and balanced portfolio is key to ensuring you reach your financial goals. Review your portfolio regularly and make changes as needed to ensure you’re taking advantage of the current market conditions. Don’t forget to rebalance your portfolio on a regular basis to maintain your desired risk level.
You should review your portfolio and make changes if:
– You’ve received a large financial windfall that you’d like to invest in your portfolio.
– Your current investments don’t line up with your financial goals anymore, such as retirement or saving for college.
– You’re not happy with the risk level of your investment portfolio (too risky/not risky enough).
Reviewing and making changes to your investment portfolio doesn’t need to be difficult! Let’s take a look at some easy steps you can take to manage your investment portfolio:
Think About Where You Want To Invest
Identify where you want your money invested (conservative/balanced/aggressive). This will help determine how much money to invest into each asset type (stocks, bonds, cash). You might also want to consider how you want to invest your money, for example if sustainable and ethical investment is an important factor for you.
You need a great tool for tracking your net worth, asset allocation, and performance over time. You can use Personal Capital to find new opportunities for growth in your portfolio. This way you’ll manage your finances better and ensure future success.
Think About How Much You Want To Invest
Determine how much of your portfolio to invest in each asset type. For example, if you determine you want 80% of your money in stocks and 20% of your money in bonds, then you would invest £80 into stocks and £20 into bonds.
How much you should invest in stocks depends on your risk tolerance (how much of a loss you can withstand). How much you should invest in bonds is based on how far away you are from retirement and the income you need to cover living expenses.
Determine if you need to change the way in which your portfolio is allocated; i.e., whether you want more or fewer stocks or cash in this case. If the investments you’re currently making don’t line up with your financial/life goals (retirement, college savings for kids), then it’s time to make a change.
Review Investment Performance
Review investment performance on a regular basis (quarterly/annually). If your current investments don’t align with the risk level you desire for your portfolio or if they have underperformed against their benchmark index, consider selling them and reinvesting the money elsewhere.
How often should you check your portfolio’s performance? It really depends on how active you are with your investments. If you’re checking them every day, chances are your portfolio isn’t getting the attention it deserves and you may be tempted to make rash decisions when things go poorly. Checking your performance once a quarter is generally a good idea for most people.
Rebalance Your Portfolio
Rebalance your portfolio at least once a year to maintain your desired risk level by selling off any investments that have grown beyond their target allocation percentage and using the proceeds to buy investments that have decreased in value below their target allocation percentage.
For example, let’s say you want to maintain an 80% / 20% stock to bond allocation. You invest £80 in stocks and £20 in bonds every quarter for a year. At the end of this time period, your £80 investment in stock has grown to £88 and your bond investment has decreased by£3 (to £17). To bring your portfolio back to the appropriate risk level, you would sell £4 worth of stocks and buy £3 worth of bonds.
Investing in high-performing investments is great for generating returns, but remember that not all investments will perform equally. The goal isn’t to maximize returns, it’s simply to meet your financial goals (i.e., retirement, college savings).
Why Is It Important To Manage Your Investment Portfolio?
Investing in a well-diversified and balanced portfolio is key to ensuring you reach your financial goals. Maintaining this balance is important when the market changes. For example, let’s say the economy improves and investors begin moving their money out of safe, conservative investments (like bonds) and into more volatile stocks. If you haven’t rebalanced your portfolio to ensure it’s still within the risk tolerance you desire, then you may end up losing money when stock prices begin to fall again.
If you’re looking to manage your investment portfolio and ensure future success, it’s important that you review performance on a regular basis as well as rebalance at least once per year. With Personal Capital, you can check the performance of your investments in one easy dashboard. You’ll know how much money is coming in from dividends or interest payments and where those funds are going (stocks, bonds, etc.). Regularly checking these metrics will help identify trends and opportunities for growth.