Profitable investing starts with a commanding core strategy based on tireless research, but equally important is how you manage your portfolio. While a properly managed portfolio can protect you from market downfalls, a poorly managed or ignored portfolio could mean severe financial loss. Most investors have heard that tending to the portfolio is important, but new investors may not really know what that means.
Diversification
1. Diversification is key to both financial growth and protection. Investors know that to put all available funds in to one stock or sector of the economy can mean financial ruin, so strive for diversification. Because investing in all economic sectors is impossible, try picking three to five where you have knowledge. If you work in the medical profession, health care should be one of your sectors of choice. Pick two to four others where you have either knowledge or interest.
Find the Best of Breed
2. Each of these sectors will have mutual funds, ETFs, stocks and bonds that are the best. Maybe you picked energy as one of your sectors and found that Exxon, Chevron or BP is the best in its breed. In technology, Apple or Google may be at the top of your list. The best of their sector are often perfect for safe, long-term investments yet may not provide sizable short-term gains. There are numerous online tools to help you construct a portfolio and find those best-of-breed stocks.
The Up and Coming
3. Finding the best stocks is important, but you may want other, more risky investments. It is not recommended that new investors look at more risky choices until they are confident in their abilities, but true portfolio management has a mix of best-of-breed and up-and-coming stocks. As you learn more about managing your portfolio, you will learn how to balance between different levels of risk.
Always Have Cash
4. You found the investments you want and now it’s time to put your money to work—but not all of it. The professionals know that it’s important to have cash available to take advantage of that opportunity too good to pass up. Many new investors have found themselves saying no to the greatest money-making opportunities simply because of lack of funds. Use an online portfolio or your broker to monitor the amount of cash you have available.
Tend to Your Portfolio
5. Don’t use your portfolio as only a catalog of your investments. While this is the most important role, your portfolio can help you to organize your research and personal notes regarding your investments. The rule from TV money show host Jim Cramer is to do no less than one hour of research of each stock you own.