When you seek to create for yourself, or let an institution
create for you an investment portfolio, there are several
factors that need to play a part in it. The key idea with
an investment portfolio is balance, and a very important
second word would be protection. In order to get the best
balance and protection for your assets, it will need to
have the following 5 features.
Asset Management
Someone is going to have to be responsible for the
management of your assets in the portfolio. Whether you do
it yourself, as many people do, or let an institution do it
for you, developing a solid investment portfolio means that
it must be watched. Whoever has the responsibility needs to
be able to check it on a regular basis and must be
reliable. He or she should also be knowledgeable about the
markets in order to make the best decisions.
Along with the watching, however, comes the responsibility
to handle the assets to your best overall profit. Assets
need to be removed occasionally from one stock or mutual
fund and placed into a more productive one. The manager
will need to know when this is necessary, because moving
funds too often can only end up being more costly than it
is worth.
Multiple Instruments
Creating the greatest amount of profit also includes the
need to diversify. All of your assets should not be held in
one stock, or even in one type of stock, such as
communications. When all of your eggs are in one basket, it
is easy to lose them all at the same time. When you
diversify, however, and place some in various types of
stock, and some in bonds and mutual funds, what affects one
market should not affect them all.
Constant Analysis
In order to ensure the greatest amount of profitability in
an investment portfolio, it will need to be carefully
watched. Daily changes need not be observed, however, but
trends. The market overall fluctuates from day to day, but
a long term point of view should indicate general trends of
increasing or decreasing profitability. When the losses are
either too great, or appear to be heading for trouble, it
is time to make the transfer and place those assets into
more profitable instruments.
Performance Objectives
A good investment portfolio should have performance
objectives in place so that the one managing the assets
knows how soon to move the assets. If you want the highest
possible performance on your portfolio, then this will
necessitate a lot of changing instruments or stocks -
especially when the market fluctuates a lot - like it is
now.
Risk Toleration
You will also need to have some way to indicate how much of
a risk you are willing to take. Generally, the greater the
profitability, the greater the risk to your assets. Decide
on a percentage (that you could afford to lose, if
necessary) that you want to invest into high profitability,
and then leave the rest in a lower risk category. The lower
risk assets, a percentage of your portfolio, should
certainly include any money you intend to use for your
retirement.
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