There are countless choices when it comes to managing your investment portfolio. This is why many people find it challenging to determine what is the one best way to balance a portfolio that will maximize profit while minimizing risk. Unfortunately, there is not a single optimal manner to balance a portfolio.
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. Many will 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 play a role in deciding your investment strategy. Additionally, you will want to consider your daily living expenses and how that meshes 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, in your portfolio balance.
Also, this could mean looking into alternative investments such as commodities. Just make sure to do complete research so you know what kind of risk you are getting into. Consulting a professional financial advisor is also not a bad idea.
Decreasing risk tolerance
Of course, when you are younger you still have your whole life ahead of you which means you can afford to lose money since you 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 and earn money. Therefore, your tolerance for risk is generally lower when you are older.
This means your portfolio balance should reflect this lower risk tolerance. Therefore, consider investing in more 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.
Avoid recklessness
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 investment. Keep track of the changing macroeconomic factors that could affect 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 that you cannot afford to lose. This is why having a comprehensive financial plan is so important. It gives you a guide as to how much money you should put at risk and how much risk to take.
Financial and investment advice
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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. 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 loss regardless of strategy selected, including diversification and asset allocation. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
The companies engaged in the communications and technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Cryptocurrency issuers are not registered with the SEC, and the cryptocurrency marketplace is currently unregulated. Cryptocurrencies are a very speculative investment and involves a high degree of risk.
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Be sure to contact your financial advisor or a qualified professional regarding your particular situation before making any investment or withdrawal decision. |
Now, you may be thinking that all of this seems quite overwhelming and over your head. There is, after all, a lot that you would need to research and keep track of. At Rademacher Financial, Inc, we have a deep knowledge of the markets and investments — we would sincerely welcome the opportunity to discuss this with your further. Please give us a call today and we will help as best we can!
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All investments and strategies have the potential for profit or loss. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that an investor’s portfolio will match or exceed a specific benchmark.
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