Investment management and how to build a profitable portfolio
In recent times, online trading has provided an effective strategy for safe investment and an excellent opportunity to build a personal investment portfolio. Also, the do-it-yourself culture, especially in personal financial planning, creates the rampant desire for people to be in control of their finances through investment management.
Some people prefer engaging the services of professional investment managers to guide them in their investment management. In contrast, others can independently leap if they have the requisite know-how. As a result, there has been a significant rise in trading brokers and brokerage firms.
What is investment management as it relates to portfolios?
Investment management refers to your ability to safeguard your financial assets so that they yield more profit while preserving your capital. However, you create an investment portfolio when you group your financial assets, including stocks, bonds, cash/cash equivalents, currencies, commodities, etc.
Therefore an investment portfolio is a collection of financial assets that an investor owns. It is also a set of investments that an investor uses to increase profit or return on investment while securing their capital or assets.
What makes up an investment portfolio?
An investment portfolio is vital for diversification if you want to enjoy the benefits of investment management—financial sustainability. Essentially, in investment management, collecting your assets in a portfolio gives you a set of asset classes that you can use to guard against risks.
Alternatively, your investment advisor or broker can use your asset classes to create a balanced investment strategy across several platforms to engender better capital growth with limited risks.
Here are vital components of an investment portfolio:
Stock trading and investment are among the most popular elements of an investment portfolio, especially among Americans. According to USAFacts, more American adults invest in stocks and bonds.
Interestingly, information from the Federal Reserve’s Survey of Consumer Finances reveals that about 53 percent of United States families in 2019 owned publicly traded stocks. Investing in stocks or stock trading gives you a right or participatory ownership in a company, and the size of ownership depends on how many shares you own.
The beauty of stock investment is that you make a profit through dividends which the company pays to its stockholders as they make a profit. The buying and selling of shares—stock trading also opens more investment opportunities for individuals.
Bonds are a more secure form of investment and almost the direct opposite of stocks. Bonds are loans to companies or the government that pay investors a fixed return rate for a period. Bonds add balance to a portfolio and guard against the risks of stocks, like when stocks plummet significantly.
Other investments are part of your investment portfolio. They include other valuable assets like commodities, currencies, real estate, etc. Other forms of alternative investments are less commonly traded than currency trading and commodities trading, unlike stock trading and bonds.
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Types of investment portfolios
Portfolios differ according to their strategies of investment. Here are the different types of portfolios.
Growth portfolios are investments with higher risks but the potential to yield more profit. You build a growth investment portfolio when you invest in smaller companies and businesses with growth potential.
Income portfolios focus on investments that yield regular income instead of potential capital benefits. For instance, you could invest in forex trading, cryptocurrency trading or commodities trading to make a steady profit as the price fluctuates.
Value portfolios allow investors to buy cheap assets as leverage in turbulent economic times. The idea of value investing is capitalising on low-priced assets. When businesses experiencing financial difficulty aim to sell off to survive, investors take advantage of the window for profitability by finding business bargains.
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Can you independently invest?
Although you can independently invest if you have ample knowledge of investment management, proper financial planning is critical for a successful solo investment/investment management.
However, because there are experts in the financial market and investment managers, it is sometimes advisable to engage the services of an investment manager or trading broker if you run online trading as an investment.
Top five ways to manage your investment portfolio
It is one thing to have a diverse portfolio, and it is yet another thing to carry out proper investment management. Here are five top ways to manage your portfolio that work.
Define your investment goals and strategy
As cliche as it sounds, “he who fails to plan, plans to fail,” and goal setting is part of panning. Your goals determine the best time to buy and when to sell for a profit.
Here are a few self-examination questions to help you with your goal setting:
- Why am I investing?
- For how long should I invest?
- What are my investment goals or target?
- What things do I need for a successful investment?
You can ask yourself as many questions as possible to stimulate your mind’s problem-solving aspect. What’s more, they will help you figure out your investment strategy even when your goals change.
Diversify your assets
Diversifying your assets involves separating or classifying your assets into different areas. The idea is to create a balanced portfolio well insulated against market volatility and bad economic situations.
Examples of asset diversification include but are not limited to;
- Stock trading
- Commodities trading
- Forex trading
- Cryptocurrency trading, etc.
Even though a diversified investment portfolio protects itself from market fluctuations, a little redundancy can plummet your benefits. As a result, it is paramount to rebalance your investment once in a while.
Experts suggest rebalancing your investment portfolio once or twice every year by consciously shifting funds from one investment class to the other. It is a manual way of bringing your investment to realign with your initial strategy.
Diversifying your investment protects it from sudden economic changes. It is an intelligent way to minimize risks while waiting for your profits. Interestingly, the rise of online trading and transactions makes it possible to diversify your investment portfolio without breaking a sweat.
You can invest in crypto trading or the stock market. Moreover, several online brokers like eToro, Avatrade, IQ options, etc., offer a variety of tools to help you through proper investment management.
Learn how to manage your investments yourself
Several ways of investment management exist. You can either manage it yourself or get an expert to manage your portfolio. While Solo investment management is no easy feat, entertaining guidance and strategic planning from experts help.
Whether you get an expert to manage your investment portfolio or manage it yourself, here are a few essentials to keep in mind.
- Understand the fees for investment management, as it can significantly affect your return on investment (ROI). Several top brokers offer exciting discounts or charge lower investment management fees if you invest in online trading. Alternatively, if you employ a financial analyst or expert to manage your investment, it also helps to be aware of their charges or professional fees.
- Get informed on taxes and their implication on investments and your returns. You do not want to have problems with the law—IRS for tax evasion.
- Seek ways to minimize investment risks. For instance, if you invest in forex trading, learning all about leverage in forex and how to use stop orders will protect your returns.
So, are you looking for ways to save for investments and your future ?
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Even though investment and portfolio management can be challenging, we hope that the five steps in this article help set you up for more financial success.