Portfolio Management Techniques

A financial analysis is on a tablet on a desk.
A financial analysis is on a tablet on a desk. (Image: Anatoliy Babiy/iStock/Getty Images)

No matter how big or small your investment portfolio is, you can learn valuable lessons from successful investors. For example, proper timing for your investments is important, but this is often difficult to achieve in practice. As investment expert Ken Fisher noted in a June 2014 article on the "Forbes" online website, “There is a time for everything. The key is figuring out when, and it’s tricky.”

Long-Term Consistency

By most accounts, Warren Buffett is one the most successful professional investors anywhere based on his investment performance at Berkshire Hathaway in the last 50 years. But even his results are often modest when viewed in the short-term -- such as over a year or two. One of Buffett’s primary secrets to success is his adherence to prudent investment strategies over a long period. His goals for investing involve realistic annual returns -- sometimes 12 percent or less annualized. But consistent results like this over several decades can produce impressive results for both Warren Buffett’s company and your retirement accounts.

Emphasize Income and Minimal Debt

While views differ about the wisdom of using debt -- or borrowed money -- to buy investments, a practice of using little or no debt is typically viewed as the least speculative. It also saves you money by avoiding interest costs and reduces losses when investment values decline. Whether you are buying real estate or stocks, emphasizing investment income allows you to receive annual cash flow while waiting for long-term capital appreciation to occur.

Avoid Costly Mistakes

Even seasoned investors make mistakes; the key is to keep any mistake from being too costly. It's also important to learn from your mistakes and to develop an investment plan before you start. Other strategies include lowering your expectations to reflect modest results and keeping your investments as uncomplicated as possible. Another cost-effective method for learning about potential costly investment mistakes before you make them is to read about the mistakes made by other investors. Finally, if you need expert help, seek out qualified advisers.

Diversified Portfolios

Investment diversification means having a portfolio that consists of several different investments rather than one -- the classic wisdom of not placing all of your eggs in one basket. If you own securities, the prudent approach is to own several stocks, bonds or mutual funds. You will also improve your portfolio diversification by owning several different classes of investments -- for example, common stocks, real estate and gold bullion. With individual stocks, proper diversification can mitigate the risk that investment in one company can bring to your portfolio. It's the same with real estate: By owning several commercial properties such as apartments or self-storage facilities, you will not be as exposed to the poor investment performance of one property.

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