Given the way technology has advanced, investors are better equipped than ever before when it comes to taking their investment decisions into their own hands. Between low-cost discount brokerage accounts that can be managed over the web and the wealth of information about specific investments, there is really no reason an average yet keen investor cannot manage an investment portfolio by him or herself.
The one area that is often neglected, even by keen investors who may know from day 1 where to invest their assets, is the investment statement. This important statement is what should be used to govern one's investment portfolio through good times and bad. It can help to determine one's long-term asset mix and help with the decision about whether to buy or sell specific assets that have grown quicker than the rest of the portfolio of which have underperformed the portfolio as a whole.
When building an investment statement (or investment policy statement as it is also known), there are five key areas that the investor should address. Collectively, the responses to these areas can help to construct the overall portfolio in terms of asset mix, asset type (e.g. short-term vs. long-term, value vs. growth, income vs. equity, etc.) as well as help to decide when investment transactions should take place.
Purpose. Perhaps the most important area one needs to address when building an investment portfolio is the area of investment purpose. Here, investors can gauge whether they are safety, income or growth driven. While almost all portfolios will be a mix of the three, the core driver will keep the portfolio slanted toward one of the three purposes listed above - safety, income or growth.
Risk Tolerance. Understanding one's own risk tolerance will help guide investors as to when they should cut their losses and take their gains. It will also help to create a short-list of potential securities.
Time Horizon. Knowing how much time one has to achieve their investment portfolio's purpose is idea. A short-term investment (less than 1 year) cannot focus on growth, since short-term investments are more likely to be extremely high risk and could mean not achieving that short-term goal.
Knowledge Level. Being keen enough to know where one has and lacks knowledge is instrumental. In areas that lack knowledge, investors should seek external, expert advice to help to properly construct their portfolio.
Resources. Whether you are looking at a short-term or long-term investment portfolio, understanding what other resources you have available can help to guide your investment decisions. A portfolio of 0,000 for someone who earns a salary of ,000 is more important and restrictive than that same portfolio for someone who earns 0,000 per year. Likewise, total net worth including employer-sponsored plans, real estate and other assets should be taken into account when figuring out one's total resources.
By sitting down and giving the five areas listed above the consideration they need, someone with a true interest in investment management will find their investment decisions and portfolio management is a lot more objective and successful. Failure to consider these items when building and managing a portfolio will almost certainly result in disappointment, frustration and loss.
| Price : $69.99 | Post Date : Mar 14, 2012 15:25:05
