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How to successfully manage your investment portfolio

The world of investing can be a little overwhelming when you first start out, but understanding the behaviours that are needed to be successful are all it takes to reap the rewards. Here’s how to manage your investment portfolio so that you can make the most out of your financial assets and achieve financial independence.

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Do your homework

With so many investing methods to choose from (some of them being highly complex), it can be difficult to know what makes a successful investor. You don’t need to make things very complicated. As a starting point, read lots of guides on how to invest, and good stocks to start out with. Try low-key index investment strategies that require you to only purchase a few index funds. Then assess your portfolio every year to see what works. Essentially, the more information you have to hand, the easier it will be to take bigger steps as you go and learn by experience.

Get a brokerage account

It is worth taking out a brokerage account, which is where you will hold some of your funds and trade them, too. Your brokerage account will take some of the hassle out of trading for you, enabling you to buy and sell stocks from companies without you having to contact them yourself. Some of the most popular brokerages are Vanguard, Fidelity and Schwab. You’ll need to open an account, transfer any funds you’d like to invest from your bank account to your brokerage account and you’re ready to start trading.

Protect your portfolio with a ‘margin of safety’

It is important to construct a ‘margin of safety’ around any assets you own, as this will protect your portfolio. Do this by being conservative when you estimate what will happen with your assets – don’t overestimate their successes because the market is in a positive state, and never over-pay for mediocre stocks that could be a drain on your portfolio. When you’re making a valuation on how your investments could perform, be cautious. You should only purchase assets that are either close to or way below your estimate of their fundamental value, as this will ensure you get a good deal. Some companies may offer stocks that have great returns on capital, but most will require you to exercise caution when looking at the return on investment, especially because stocks can drop by up to 33% of their market value typically every few years. You don’t want to purchase stocks if they only have small safety margins.

Only invest in assets you understand

Many investors choose to invest in companies that are in industries they have little knowledge of. In order to invest well in a business, you need to understand how it makes money. You need to be able to forecast and estimate how a business will grow and develop in five to ten years time. If you cannot do this, don’t purchase stock. Keep in mind that there are lots of companies coming into business that may be exciting now, but will end up going bust in the long-run. Don’t let an exciting new business sway your careful judgement. Time will tell if a business is truly worth your investment.

Be rational when buying and selling

The higher the price you pay for an asset (in relation to what it could make you), the lower your return. Likewise, you wouldn’t accept an offer of £350,000 on a house that you had originally purchased for £500,000, so don’t do this on the stock market. Some people trading on the stock market panic and quickly sell when stock is believed to be worth less that what was originally paid for it. As long as you have calculated your levels of risk carefully and estimate growth within a business over a long-term, you can take a more rational, long-term approach.

Keep costs, fees and expenses to a minimum

If you take part in frequent trading, bear in mind that this can impact on your long-term results due to additional taxes, fees and commission. Although frequent trading seems like the right thing to do to keep on top of things, sometimes letting your investments ride it out for a while can be a better option in the long-term.

Don’t rush

Selecting and implementing an investment portfolio takes time and consideration. When you have found a portfolio you like, wait a few months before exchanging it, as the market could change and acting too quickly could present you with a higher tax bFinancial Advisor UK. If you’re just beginning to get to grips with investments, don’t be too concerned with achieving the perfect portfolio from day one. A good way to begin any portfolio is to buy a total stock market or large cap index fund and go from there. Over time, you will learn from experience and find the best ways to make money, and will also discover which assets are not best serving you. Don’t be afraid to take a step back and ignore your portfolio, as markets go up and down all the time. Have an annual rebalance and check whether any of your assets haven’t achieved your target percentages. If they haven’t, rebalance your portfolio by purchasing new shares of the funds that have decreased below your target percentage. You can also sell any stocks and shares that did very well.

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