Your investment strategy can greatly influence the success of your portfolio. If you have been investing without a strategy, or your strategy could use an update, then it’s time to reassess how you manage your portfolio. It’s never too late to create a strategy, and it’s never a bad idea to review your current strategy to see where improvements would be beneficial.
The market is constantly changing and it’s important to stay on top of your portfolio so that you know your investments are bringing you closer to your goals.
Here are some things to you may want to consider when (re)aligning your investment portfolio:
What are the features of your ideal portfolio?
Are you looking for stocks with a high rate of growth, or are you hoping to receive higher dividends? If you’re risk averse, that should be taken into consideration too. You may want to pursue stocks with less risk, or alternatively pursue stocks with more risk and higher potential return. Your investment portfolio is individual and custom to your financial goals. Identify what your ideal portfolio looks like and start making steps to get there.
Is your portfolio diverse?
I think your investments should be allocated into several different categories, like cash, stocks, and bonds. Even further than that, you should own stocks across several economic sectors. The goal of diversifying your portfolio is to help mitigate the risk of a downturn. By having multiple investments which theoretically should not move in the same direction at the same rate, you may help reduce the chance of a downturn having a significant impact on your portfolio as a whole.
How long do you want to hold stocks for?
I think your holding period may depend on whether or not you are looking to trade quickly for fast gain or hold out for longer periods of time. This is also going to depend on when you purchase your stocks. For example, you wouldn’t want to purchase a stock that you plan on keeping for a longer period of time at the beginning of a steep decline in value.
What are the common trends in today’s market?
When the market is strong, you’re likely to have an easier time finding investments that appreciate at decent rates. In a bear market, or declining market, it might take some digging to find beneficial short or intermediate term investments. You should keep a watchlist of stocks and track their trends in order to determine when and which ones you might consider trading.
Is price to earnings ratios favorable?
The stocks that you trade generally should be comparable to or favorable over the competing stocks in price / earnings ratio. This ratio is the price per share divided by the earnings per share. Too high of a P/E ratio could indicate that the stock is overpriced, and low ratios could indicate a bargain or be an indication of weakness.
*Any opinions are those of Roy Gray and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.