The old saying goes that you shouldn’t put all your eggs in
one basket – the same goes for investments. By spreading your interests across
multiple investments you’re more likely to find a successful venture while reducing
any negative impacts of investments which don’t quite work out.
Your portfolio should match the amount of risk you’re
willing to accept counterbalanced with the types of return you’re looking for
from your investment.
The easiest way to choose investments for your portfolio is
to go through investment funds such as unit trusts, open-ended investment
companies and exchange traded funds. They are good value for money and allow
you to spread your interests over more accounts and thereby reduce the risk.
It also be wise to use low-cost tracker funds in your
portfolio to manage the costs of your invests although larger assets like
property could probably do with a higher degree of management which may cost
extra.
It would also be beneficial to learn about different types
of investment products, active vs. passive investment and how fund charges can
take a chunk out of your returns.
While it isn’t always advised, some people choose to invest
without the guidance of a financial advisor. These people can instead use a
supermarket of fund discount broker which allows you to purchase investment
products and monitor investment performance in all in one place.
Picking investments, fund supermarkets and discount brokers
yourself can significantly reduce the commissions you would otherwise pay out
to financial experts but without that expert guidance you could significantly
damage the performance of your investment portfolio in the long run.
Investment portfolios need to be reassessed every year to
make sure they are still viable. This may mean making changes to ensure they
retain their asset allocation. Overtime assets may change and so they become
out of sync with your asset allocation requirements. This may be as a result of
one asset expanding quicker than the others.
For instance, if your European equities are supposed to be
20% of your portfolio but they have now grown to 45% you’d need to sell some of
these European assets in order to maintain the levels you were managing
initially. You would then need to purchase other stocks to readdress the
balance of the asset allocation.
You could even look into using macro investment through
companies like Louis Bacon’s Moore Capital Management. This involves investing
on a large scale around the world using economic theory.
The temptation to constantly tinker with your portfolio
should be avoided however as some assets develop over time and it makes it
harder to analyse the portfolio’s performance.