You may wish to argue several reasons for handling your own investment portfolio – but in truth it’s not for the fainthearted. Saving costs is one reason, having closer decisive control is another. You can also decide what you are going to support with your funds, and what you feel you should deny. If you want to support the green industry more significantly, then probably making your own investigated choices is the best way to go.
For some, making financial decisions is something to be left up to a broker or financial advisor – which is perhaps the wise choice. Weathering the storms is something they know how to do, and your money may well be safer in their hands. Besides, better returns for you means more for them – so they’re going to take care! But whatever your reasons for wanting to take the wheel yourself, there are some serious considerations to run through first.
- Have you really assessed this with yourself? Because if you falter and run at the first sign of trouble or uncertainty, you are not going to do very well with your money. Disconnecting yourself emotionally from your money is the most important aspect of dealing with your investments yourself.
- What are the investment principles by which you operate your portfolio? What are the characteristics you look for in the stocks you want to buy? Remaining detached so you can make decisions on rational business analysis rather than emotional reactions to changes in the market place, is vital.
- If you feel panic at the thought of equity prices dropping and you have a tendency to sell at a moment’s notice, you shouldn’t be managing your own investments without professional help.
- Your risk comfort relates to how you choose to allocate your assets – splitting your portfolio between stocks, bonds, and cash. Wise investment management should see you comfortable with these choices, and prepared for regular rebalancing, making sure you don’t have more of your portfolio in one type of investment than you had planned.
- Handling your investments yourself requires you stick to a moderate-sized portfolio and display a decent grasp of basic investment principles. There are financial management programs and tools available to help you implement your asset allocation in line with your risk preference. If you have low tolerance for risk, then best to have a lower proportion of your portfolio in stocks.
- Do you really know how businesses work? “A business is only worth the cash flows that it will generate from now until doomsday, discounted back to the present value at an appropriate rate.” If you don’t understand that sentence, it is probably a bad idea for you to be selecting investments for your portfolio.
- The reported net incomeand earnings per share in a company’s annual report are, at best, a rough estimate. Management has to make numerous estimations and assumptions regarding debtors, depreciation of equipment, estimated sales potential, staff expenditure, etc.
- Some companies can fudge these numbers to look better than they are. You need to be able to assess a company wisely, read the balance sheet intelligently, and protect yourself from making ill-considered decisions.
Here’s what you’ll need to do
Learn a few simple investing principles: There are ways to keep things uncomplicated.
There are low-key index investing strategies that only require that you purchase a handful of index funds and rebalance your portfolio once a year. If you can stick to a determined, steady strategy, you can most likely manage your own portfolio.
Find a portfolio plan that works for you: There are sources and charts online where you can study and test your portfolio ideas. Read books and follow websites. Look at data points such as: long-term returns and deepest drawdown, and find something that you feel comfortable with. It’s important to know why you might be attracted to a certain portfolio, but also important to know how it works. Make sure you are an active participant in what should ultimately be your choice
Purchase the necessary index funds: Make sure you purchase the necessary index funds in the right proportions. Best advice is to go with 40% Total Stock Market, 20% World Total Stock Market, and 40% Intermediate Term Bonds. When you purchase assets, you’ll find that there are many different index fund options for each asset. Check out costs – some funds cost less than others once expense ratios and trading fees have been accounted for.
Take your time: No need to rush the building of a portfolio. You can wait and watch for a couple of months before cementing your input. Be smart and don’t act emotionally. No portfolio need be perfect from the get-go. First buy a total stock market or large cap index fund, as that will be a core component of almost any other asset allocation you grow into. Only when you have tested the waters, and learnt more about how the markets work, can you look at new assets to diversify your holdings.
Rebalance once a year: Once you have selected your portfolio with judicious screening, you might be best served to leave it alone, and let it work, because markets go up and down all the time. Good luck is not what you should rely on, but good management. Once a year you need to check if any assets have deviated from expectations. This is your opportunity to sell shares of funds that have done well, and perhaps use some of the gains to purchase new shares in funds that have dropped below their target percentage.
Check your policies, check your life
Verifi is an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies by sourcing information from all the major life insurance companies – and presenting the information in a comprehensive report.
With Verifi you are able, for no charge, to access information on all your life and investment policies at a glance. You are able to check the types of policies you have, the names of the insurance companies providing the cover, the nature and extent of the insurance cover provided – and other vitally important information such as the details on your policies being correct.