Managing an investment portfolio doesn’t look the same to everyone. Some Lakewood, Colorado investors find it exciting; others may find it daunting; some may find it time-consuming and others find it a worthwhile use of their time.

Here’s a quick brief of the basics of investment management.

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Link Your Investment Strategies to Your Goals

Investment management should be linked to specific goals. Are you investing for retirement, for example, or to fund extensive travel? Without specific goals in mind for your disposable income, you’re traveling without a road map.

Write down your short- and long-term goals and allocate your money to reach them within a specific time frame. Do you want to retire in 20 years, for instance? Then that’s the time horizon for your retirement investments.

Assess Your Opportunity Cost

When reviewing your goals, be sure to assess the opportunity cost of various financial goals. Compare alternative uses for your disposable income and strategize the one that provides the possibility of the highest return. 

This is helpful if you’re thinking through whether to place your disposable income in an investment portfolio, pay off debt, save for a down payment of a home, or other financial goals. 

Know the Basics of Investing

Understand the Risk-Reward Profile of Asset Classes

The goal of investing is to grow your money over time to reach your goals. That sounds simple – but it’s anything but simple. You need to place your money in specific investments: stocks, bonds, cash, and other assets, such as real estate. All these asset classes have a risk-reward profile that investors need to manage. 

Evaluate Your Risk Tolerance

Investors need to evaluate their risk tolerance when investing. Risk tolerance refers to the comfort level one feels with the volatility of financial markets, especially when you have the potential of seeing a loss in your portfolio. 

It’s important to understand your risk tolerance because panic or anxiety at seeing markets drop can lead investors to pull their funds out of the market. That can have profoundly negative effects on a portfolio over time. If the market drops 20 percent and an investor sells stocks to prevent further loss, they are essentially forfeiting the chance to regain their money on the stock. 

It’s prudent to work with a financial advisor to evaluate your own risk tolerance. 

Manage Asset Allocation in Portfolios

The variable risk-reward performance of asset classes is managed via asset allocation in portfolios, with asset classes receiving a percentage of portfolios. It’s prudent to set up your investment portfolios to harness the stability of bonds and cash, to minimize risk as much as possible and protect against stock market volatility, and also to harness the earnings power of stocks to maximize reward.

Asset allocation also takes into account multiple factors, such as age, risk tolerance, diversifying within asset classes, your time horizon, the sector you’re employed in, and more.

Utilize a Financial Advisor

Once you understand the basics, you can manage your investments to meet your goals.

Most investors, however, will benefit from utilizing a financial advisor to help them manage their investments. Not all financial advisors are professionals in managing portfolios, including strategizing asset allocation and maximizing reward while minimizing risk.

Financial advisors can monitor your investment portfolios on an ongoing basis, freeing up your time for goal maximization.

The CERTIFIED FINANCIAL PLANNER™ Professionals and Certified Estate Planners™ at The Normandy Group offer serious financial planning for today’s complex world.  By combining tax, financial, and estate planning strategies we can help you achieve your goals. Contact us today for a complimentary consultation.

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