5 Rules to Managing your Portfolio
If the stock market gives you goosebumps, you are not alone. The majority of investors find themselves stressing over the many aspects involved in the investing process. The process of monitoring the markets, following up (or not) on tips and trends, deciding what to do about specific stocks, and draining future investments. The most common fear investors have is of losing their hard-earned money. Many investors have lost some of their investment principal by following up on a stock tip that didn’t pay off.
Be assured that all these problems are genuine and typical. But getting over them is not a difficult task; you need to have a set of rules, modified according to your temperament and savings patterns. There are methods that can help you navigate the turbulent waters of investments, and I will personally cover them in upcoming blogs.
1. Accept Market Volatility
As an investor, you have to realize that volatility is an inherent feature of the market. The high returns that we all expect from the market are due to the top side of volatility. The dips in volatility are opportunities to buy into the stock market and if your portfolio does take a hit, ride it out. Don’t panic, and try to sell off your investments. It is more than likely that the dip will pull up. You should be prepared for at least a 10% market reduction at least twice a year, a 25% decline every two to three years, and a heart wrenching 30–40% dive every five years. Company stocks can be even more volatile.
2. Give it time
Realize that the quick earnings are not for everyone and give your portfolio time to gain. If you look at top-performing stocks, they took time to reach their peaks. Similarly, your portfolio would need time to show its gains. It is a crucial concept of compounding that you do not break it up. Be prepared to hold your investments for the medium to long term to make large gains.
3. Diversify
It makes sense for the long-term passive investor to invest in an indexed fund. If you want to get better than market returns, you have to buy into individual stocks in order to book better than market returns. Ideally, you should pick out 10–20 stocks and give them time to grow. The 80–20 rule should apply here; 20% of your stocks will generate 80 % of your income. There is no way to predict the big stocks, but having a bundle of stocks across diverse industries would help you get good returns.
4. The Grass Is Not Always As Green
Regardless of the need to diversify, make sure that you are not biased against your holdings. The current stock market darling may not be giving results as high as your top-performing stock. Don’t get carried away by the market hypes and trends and if you feel doubtful, analyze your portfolio to see how it measures up to the current hype.
5. Keep going
Like everything else in life, investing requires persistence and perseverance. Don’t just buy a portfolio and leave it to time. Make saving a habit and keep on saving. Add the savings into your portfolio as and when you find opportunities to add to your portfolio.
The ideal strategy would be to keep your savings handy to buy into the stock market as an opportunity emerges. Having the cash available to invest gives you a cushion to protect against market volatility as well as the flexibility to enter into investment options as and when they occur.
The Road to Great Investing
Regardless of if you are a new investor or a veteran of stock market investments for years, we are sure that you can elevate your investment to a better level by following these five primary rules. Saving and investing is a life process, and we hope that these rules will help you improve your portfolio as you move towards achieving your investment goals.
