Understanding what kind of investor you are will help to determine what your investment portfolio will look like.
One of the best things you can do for your finances is to arrange your investment portfolio in a way that allows you to meet your goals. While it might initially seem like a daunting task, the reality is that there are tools out there that can help you take more control over your investment portfolio.
There are more conservative investments like bonds and there?are riskier?investments like stocks. Over time they do both offer returns, but many?influences affect their performance. When researching the available broker platforms,?be aware of the cost of transaction fees. In order to take control of your investment?portfolio you should consider the following questions:
What Are Your Financial Goals?
If you are investing for retirement, your portfolio will have more stock holdings.?Following several companies can be challenging and it may be best to limit you holdings?to 10 to start. Bonds can offer a short-term fixed income you can use to help save for a?child?s college fund or as a fixed income during retirement, but a bond is only as good?as its credit rating. Cash is also important to build and allows for greater freedom with?investing. Unfortunately, you run the risk of losing out to inflation in the long run.
The goals you have, and the timeframe you have for achieving those goals, matter when you want to be in charge of your investment portfolio.
Can You Handle Volatile Markets?
The stock market can change quickly due to geopolitical situations, weekly data reports, or comments from the Federal Reserve. It?s important to stay in touch with the markets,?but the day-to-day analysis of them can drive you crazy. The most important driver of?the stock market is earnings reports. Listen to the conference calls of the companies?you hold stock in, and understand the macro forces around the globe that can impact?the sectors in which your companies operate.
You should also learn how to ignore the noise in some cases. A lot of the time, if you have a good investment plan with index fund and ETFs in your investment portfolio, you should be able weather most storms. If you have long-term, big picture goals, you don't want to pay so much attention to every news bulletin that you panic into making poor decisions.
Do You Have the Right Mix of Investments?
For retirement, having a majority of your holdings in stocks makes sense, but it is also?important to have a mix of stocks, bonds and cash. As interest rates change, a bond?may offer a higher return. When the economy is booming, cyclical stocks make a good?investment. In both situations you have to know when to get out of those holdings?before the markets or interest rates change. Cash is good to have on hand, when?sudden drops in the markets put stocks on sale.
What Kind of an Investor Are You?
There is a lot to know and understand to successfully grow your own investment?portfolio. Knowing your financial goals will help determine your investment strategy.?The proactive investor will understand the multiple variables that can impact stocks and?bonds. Understanding your risk threshold will determine a conservative or aggressive?investor. Having the right balance of stocks, bonds and cash will keep your investment?portfolio performing during bull and bear markets.
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