How to Improve Your Portfolio
The success of your investment portfolio depends largely on the steps you take over the years, on your way to retirement. Instead of simply buying some stock and putting your portfolio on autopilot, a successful portfolio requires regular attention and periodic changes. Making small changes to your portfolio composition can make a significant difference over the years, with the power of compound interest. Otherwise, your retirement may not be as comfortable as it should be.
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Instructions
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Watch out for investment costs. When managing a portfolio, many people do not take into consideration the costs that come with the investments they choose. For example, every time you buy stock, your broker gets a commission. The mutual funds you own charge regular expense ratios for management. Choosing investments with lower investment fees can make a big difference in your portfolio's returns.
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Diversify the investments in your portfolio over several different asset classes. For example, put a percentage of your portfolio in stocks, another amount in bonds and another amount in mutual funds. This way, when one investment performs poorly, it will not devastate your account.
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Allocate the proper amount of money to each investment class. While you may have a diversified portfolio, you may have the wrong amount of money invested in each investment class. A common way to allocate your money between stocks and bonds is to make the percentage of bonds in your portfolio equal to your age. For example, if you are 25, 25 percent of your portfolio should be in bonds, with 75 percent in stocks. This makes your portfolio safer as you get older.
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Rebalance your portfolio periodically. This involves selling some assets and reinvesting that money into other assets to stick to the percentages that you choose for your portfolio. For example, if you decide to invest 70 percent of your portfolio in stocks and 30 percent in bonds, the values of these securities will change over time. If your stocks decline in value and the bonds grow in value, the bonds may comprise 32 percent of your portfolio while the stocks comprise 68 percent. In this case, sell some of the bonds and invest that money in stock to get the percentages back in order. Rebalancing a portfolio once a year is typically sufficient.
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Tips & Warnings
Do your own investment research. Instead of relying on analysts and biased resources, get detailed information about each investment before you choose it.
