Whether you are just starting or have been investing in the market for years, having a well-diversified portfolio is paramount for long-term success.
Some investors may be content to generate moderate income from their investments without growing their portfolios. However, with the right approach, and given their risk tolerance and the original amount invested, investors' nest eggs can increase heavily over time.
To diversify correctly, individual investors need to understand how to allocate assets and diversify within a particular investment category.
Usually, investors with an aggressive investment strategy can bear losses and have a higher risk tolerance, meaning that larger portions can be devoted to equities and fewer bonds and other fixed-income securities. The opposite applies to conservative investing, whereby investors can only tolerate low levels of risk.
This investment strategy aims to safeguard the original capital invested, provide an income and achieve capital security.
Always aim for the investment strategy that is best suited to your individual needs.
Each type of investment you hold in your portfolio has a portion of asset allocation and is thus essential for appropriate diversification.
Establishing your individual financial goals and considering influential factors such as your return expectations, your risk profile and, your investment profile will thus guide you to a suitable asset allocation.
For example, a young individual who just graduated from college with many years ahead will have a very different strategy than an older person who wishes to save up for a student fund.
Generally speaking, diversifying your portfolio across two to three investment options would be ideal.
Periodically, you need to rebalance and analyze your portfolio to ensure you have assessed changes in price movements, as this may cause initial weightings to change. Other factors to consider which might influence your portfolio include changes in finances and future needs.
At the same time, also consider the outlook of your securities before selling or changing equity positions.
To help you gauge the outlook of your securities, utilize helpful tools like analyst opinions and research reports which, in turn, will allow you to determine how much of certain positions you need to reduce and allocate to other classes. In this way, you'll be able to rebalance your portfolio effectively.
Regularly tracking the performance of your investments will not only assist you in achieving your financial goals but will allow you to understand if and why your investment portfolio is underperforming.
Though factors like an economic downturn might be a reason for market volatility, selling equity investments and moving bonds might not always be the best decision. If the downturn turns out to be only temporary, you will be unable to take advantage of their recovery and lock in accumulated losses.
Moreover, investing a fixed amount of money at regular intervals (the rupee cost averaging approach) will help lower the average cost of purchase and take away the burden of trying to time the markets, thus ensuring that you remain on track to achieve your goals.
To build up a substantial retirement pot, buy a second home, or pay for the best education for your children, now would be the best time to ensure that your investment portfolio is well-diversified and in line with your goals.
Also, ensure that you design your portfolio with a stock brokerage that offers a few exchange-traded funds (ETFs) as well as individual stocks, supporting your future objectives.
MEXEM understands that broker’s commission may be the difference between success and failure with investments. That is why the company remains committed to a low commission structure and leading the way for lower fees in Global Markets.
To begin your investment journey visit MEXEM today.
All investments involve risks, including the possible loss of capital.
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