Expanding your investment portfolio can be a complicated endeavor, but it offers the potential to significantly increase your income or long-term wealth. If you have a significant amount of money, it’s often worth consulting an investment specialist, as this can end up paying for itself if it increases your profits by more than you would have been able to increase them yourself. Portfolio development is an art anyone can learn, however, and if you’re prepared to put in the work, these are the things you should bear in mind to do it well.
Consider your needs
You’ll see a lot of articles out there advising you on how to create the perfect investment portfolio, but the reality is that there’s no such thing – or rather there is, but it’s different for each individual. That’s because your investment portfolio should be tuned to your needs. What’s important to you? Are you anxious to make money quickly, or are you trying to build a nest egg for retirement? If it’s the latter, how far away do you believe that will be? How much risk can you reasonably tolerate, and are there some kinds of investment that you feel you understand better than others?
Direct and indirect investment
Although you will hear a lot about the importance of balancing your portfolio, this isn’t something you need to do all by yourself. Even without bringing in an investment adviser, you can choose pre-packaged sets of assets through investment funds, open-ended investment companies or unit trusts. These have already been balanced for you at a small additional cost. You can seek out sets of assets associated with particular market sectors, countries or ethical concerns, according to your wishes.
Buy and hold
The simplest and surest way to make money as an investor – to the extent that anything is simple or sure – is to buy up slow-ripening assets and hold onto them, anticipating a gradual increase in value. This is ideal if your focus is on a retirement fund or similar far-off reward. Even if your priority is on making short-term money, however, it’s a good idea to have some stocks or bonds of this type in order to give your portfolio stability. Low-risk property investments are another good way to do this and can also generate immediate income if you choose to rent.
Diversify your assets
One of the best ways to reduce risk in your portfolio is to diversify your assets. This can mean packaging together different investment types – you should always aim to have some fast-ripening and some slow-ripening ones – but it also means spreading them across different sectors or even different countries. Doing this means that a crash in a particular sector won’t impact you as badly and will even give you some protection against national economic slowdowns and recessions.
Identify growth areas
It’s natural that you’ll want the value of your assets to grow, but how can you identify growth areas ripe for investment? You’ll generally see some of these listed in investment journals at the start of each year, but of course your real goal will be to get in there ahead of other people. To do this, you’ll need to pay attention to matters like international politics, sociological shifts and technological developments, as well as the overall direction of the market – all good indicators of how much money consumers are likely to have and what they’ll want to spend it on.
Hedge your investments
When you come to the point of refining your portfolio, trading CFDs online can be a great way to hedge your investments, essentially insuring against losses on your other assets. The crucial thing about CFDs as an asset type is that there are no rules prohibiting you from taking a short position when you trade them, so you can speculate in a decrease on an asset value – meaning that if the value of your assets falls, you have the potential to make some compensatory money on your CFDs, ameliorating your losses.
When you’ve reached a satisfactory balance with your expanded portfolio, you’ll be entitled to feel pleased with your efforts, but you shouldn’t consider your portfolio to be complete. To keep it optimized, you should review your portfolio at least every six months, and if it’s balanced in part by short-term assets, then it’s advisable to do so even more often. This will ensure that you’re always getting maximum value out of it and will put you in a good position going forward.