5 Tips for Managing your Investment Portfolio

Did you know your investment portfolio needs TLC, like your physical and mental health? It’s not a set-it-and-forget-it task; your portfolio needs constant attention and sometimes even tweaking to ensure you meet your financial goals. To manage your portfolio, you must understand what to consider when building your portfolio and understand how to reallocate it periodically. If you aren’t sure how to manage your investment portfolio, here are five tips to get you started.

Why Managing your Investment Portfolio is Important

The earlier you invest your money in life, the more likely you are to meet your financial goals. Managing your portfolio ensures you stay on track to meet those goals. Unfortunately, too many people set up an investment portfolio and expect it to reach their financial goals when it doesn’t happen without diversification, reallocation, and regular monitoring.

When you manage your portfolio, you know what it’s doing at any given time. Therefore, managing your portfolio doesn’t mean overly monitoring and excessively selling investments when they perform poorly. Instead, it means considering the big picture and making changes that help you in the long term.

5 Unbeatable Tips to Manage your Investment Portfolio

So how do you manage your investment portfolio? Unfortunately, there isn’t a foolproof way to ensure your portfolio always has gains, but these tips will help maximize your potential.

1.   Determine your Financial Goals with a Timeline

To ensure you’re investing the right way, start by naming your investment goals. Then, ask yourself why you are investing. What are you trying to achieve?

Think about short-term and long-term goals. For example, short-term goals could include saving for a down payment on a house or buying a car. Long-term goals usually involve saving for retirement.

Once you know your goals, determine your timeline. How long do you have between now and when you want to achieve the goal? This will determine what you invest in and how much risk you take.

Goals you want to accomplish soon will need less aggressive investment options because there’s less time to make up for a total loss. However, if you’re investing for a long-term goal, you have more time to make up for losses and can take higher risks.

2.   Understand your Risk Tolerance

In addition to understanding your timeline, you should understand your risk tolerance. How much risk can you afford to take?

Some investors are risk averse; they lose sleep at night thinking about the losses they could incur. Others, however, can handle more risk and want to take the risk to increase their chances of higher returns.

When creating your portfolio, you’ll want to balance your portfolio to account for your financial goals within the timeline and your risk tolerance.

3.   Know how to Diversify

If we’ve learned anything over the last few years, it’s that anything can happen. Stock markets can crash, as can an entire housing industry.

Nothing is foolproof, so you should never put all your eggs in one basket.

When you put all your capital into one investment, you risk everything. Say, for example, you invest everything in technology stocks. They do great for a year, and you watch your earnings grow significantly. But then bad news hits the industry, and the stocks plummet. So you lose all your earnings and most of the money you invested. Because you don’t have money in any other investments, you don’t have anything to offset the loss.

If, on the other hand, you put your money in those technology stocks but also invested in healthcare stocks, government bonds, and real estate investment trusts, you might not lose everything when the technology stocks crash.

The key is to put money in different industries and assets to ensure you offset any losses.

4.   Monitor and Rebalance your Portfolio Regularly

Unfortunately, the market will shift after you create the perfect portfolio, and your portfolio won’t look the same. It may take a few weeks or months to see changes, but you’ll see them.

If you don’t address the changes and reallocate your portfolio, you may not be on track to reach your goals. For example, if you had your portfolio set up as 50/50 between stocks and bonds, but the stocks outperformed the bonds, you might find you have an allocation of 75/25, which may be too risky for your timeline and risk tolerance.

Rebalancing your portfolio will get you back on track so you don’t have too much balance in risky investments that you aren’t comfortable with.

5.   Understand how to Minimize Fees

An often overlooked part of setting up a portfolio is the fees. Of course, each brokerage charges differently, but overall, you could pay commission, transaction, and administration fees.

Some online brokerages charge a monthly or annual fee equal to a specific percentage of your assets under management. Others charge a commission fee per trade plus other trading fees.

Not all brokerages are transparent with their fees, so it’s important to ask about all fees, not just what they advertise. Find out the total cost if you were to set up a portfolio, and figure out how the fees affect the outcome of your portfolio.

Final Thoughts

Managing your investment portfolio is an important part of your investment plan. Knowing how to take care of your portfolio is important whether you have short-term or long-term goals.

The key is to start early, give your earnings time to compound, and ensure you have time to ride out any storms. Of course, the market will fluctuate over the weeks and years you’re invested, so the key to successfully managing your portfolio is finding ways to diversify your assets, account for your risk tolerance, and allow enough time to meet your financial goals.