There are countless choices when it comes to managing your investment portfolio. Many find it challenging in determining the best way to do this. This key is to maximize profit while minimizing risk. Unfortunately, there is no single optimal solution.
Factors to consider
When determining the best portfolio balance, you will need to take numerous factors into consideration. Your investment objectives will vary with age as well as your overall investing philosophy. Some people may be more risk averse than others. Oftentimes people become more conservative as they get older.
Also, your current financial situation will determine what options are available to you. Your income and net worth will play a role in deciding your investment strategy. Additionally, you will want to consider your daily living expenses and how that squares with your current income level.
More risk, more gain
Although nobody wants to risk losing money, usually taking a certain amount of risk is required to have the potential of making gains in your investment endeavors. Therefore, if your goal is to earn gains quickly, you will need to be comfortable with taking more risk. This may include more growth stocks, such as technology sector companies. Also, this could mean looking into alternative investments such as commodities. Just make sure to do thorough research so you know what kind of risk you are getting into.
Decreasing risk tolerance
Of course, when you are younger you still have your whole life ahead of you meaning you can afford to lose money, yet still have plenty of time to work and earn it back. However, the closer you are to retirement age, the less time you have to work to earn money. Therefore, your tolerance for risk is generally lower when you are older.
This means your balance should reflect this lower risk tolerance. Therefore, consider investing in safer stocks. Perhaps, a larger allocation of your capital should go into bonds. However, each person is different, so your portfolio should be specifically tailored to fit your individual needs.
Every investment decision should be taken carefully after fully researching the assets you are putting your hard-earned money into. Understand the timeframe you are looking to hold your investments. Keep track of the changing macroeconomic factors affecting your investment strategy. There could be times when you will need to alter what you had previously planned.
If you are looking into more speculative investments, such as cryptocurrency, commodities, or foreign currencies, you will want to be sure to avoid using money you cannot afford to lose. Therefore, having a comprehensive financial plan is so important. It gives you a guide as to how much money you should put at risk.
Financial and investment advice
Now, you may be thinking that all of this seems quite overwhelming and over your head. There is, after all, a lot you would need to research and keep track of. It may be a good idea to consult with us – we have a deep knowledge of markets and can help you make the right investment decisions in balancing your portfolio.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.