If you want to be a successful investor, your key to success lies in a well-maintained portfolio. You have to determine how to allocate assets that best suit your investment goals and strategies. Your portfolio does not represent your present only. It also represents your future and it should meet your future capital needs and give you peace of mind. Construct your stock market portfolio carefully to align your goals.
Here are 4 steps for boosting your portfolio:
You might have heard this a thousand times over and even after all that many people fail to diversify effectively. If you wish to have a successful portfolio, you must be willing to diversify. Diversification becomes more necessary in today’s market because of high stock market values and an uncertain interest rate cycle. You should look beyond traditional stock and bond allocations for steadier returns. You have to spread your investment funds across asset classes that do not move in tandem. Combination of real estate, assets along with hedge-like investments will help your portfolio to perform better in volatile markets as well.
Manage Your Expenses
Your investment style has a direct impact on the cost of your investments and the investment returns that goes in your pocket every year. There are two primary methods of investing, active and passive management. While active management has a significantly higher cost than that of the passive, the expense difference is roughly around 1%. Passive management helps to minimize investment costs and avoids the adversity of future market movements. If you can successfully manage your expenses, you’ll be able to exhibit a healthy portfolio.
Over the course of time, your portfolio will have the tendency to drift away from its original asset class percentages. Then, you need to put it back in line to align with your target. A 50/50 equity to debt mix could easily become a 60/40 mix after a stock market bull run. This act of adjusting a portfolio is rebalancing. You can rebalance your portfolio by allocating funds to the under-weighted area of your portfolio. By selling a portion of the over –weighted region you can rebalance your portfolio. You can also withdraw money from your over-weighted asset class in order to restore balance. Rebalancing is an effective way to buy low and sell high.
Equities over Debt
Even though the stock markets have been incredibly volatile since the last few years, the equity markets have outperformed the debt market over the course of time. Yes, equities do carry higher risks, but if you have a manageable combination of both in your portfolio, you will have higher returns with low risks. Inflation tends to corrode buying power of investors but equity investing helps to enhance these returns and makes it a profitable venture. Having a healthy spread of equities and bonds will prove to be extremely valuable over time, irrespective of the volatility of the stock markets.