When it comes to taking on the tasks necessary to handle investment management for their own portfolios, a surprising number of smart people who may be a proven success in their professions or businesses become intimidated with the idea.
The volatility and uncertainty of the markets, and horror stories of big mistakes by “careful “people, can discourage any thought of self management. In addition, some individuals do not relish the thought of committing the time necessary to learn investment management basics.
Although these are legitimate concerns, you can manage your investment portfolio successfully. You will also need to have the willingness to bring in the necessary expertise when necessary. Here are some hints to doing your own investment management.
Self-evaluation and objective
A variety of factors affects your investment choices, including your age, job situation and tolerance for risk. Start by evaluating your abilities and limitations. Forbes recommends that you ask yourself the following questions to determine if you are ready for do-it-yourself investment management:
- Do I have the desire to manage my investments?
- Do I have the time to commit?
- Do I have the necessary investment knowledge
- Do I have the temperament?
Assuming you answer “yes” to the above questions, the next step involves establishing your unique investment goals, which depend on your short-term and long-term needs and requirements.
Next, establish your investment goals. This part of your plan should consider absolute income level, returns and the effect of taxes.
Research the major discount brokers, such as TD Ameritrade, Schwab, Merrill Edge and Fidelity. The one common thread among all discount brokers is the low commission rates charged for Internet-based trade activities.
Discount brokers do not provide investment advice, but they do offer a broad range of products and research tools that you can help in your decision making.
Compare the services and any difference in offerings to help you select a broker.
Your investment portfolio
You will need to assemble a portfolio that has investment tailored for your stage in life, various time horizons, risk tolerance and other considerations. Your brokerage will likely have tools you can use to help determine the appropriate asset allocation—dividing your investment portfolio among different asset categories, such as stocks, bonds, and cash—for your situation.
Kiplinger’s Personal Finance offers 22 model portfolios that cover a variety of circumstances and risk tolerances. Whether you are a young individual, couples or retirees, you can find a portfolio to help guide your investing decisions.
Most experts would recommend that you start your investment program with no-load mutual funds. You get professional management of the funds because fund managers have the task of selecting individual securities consisting of equities or bonds. You retain supervision of your money. When a fund no longer meets your objectives, simply sell the fund and buy another.
Exchange traded funds
Many investors mix and match mutual funds with exchange traded funds (ETFs). ETFs consist of funds that track indexes on assets, such as equities, commodities or bonds. In comparison, mutual funds actively purchase and hold assets. ETS are traded on stock exchanges.
If you decide to invest in ETFs, compare the commission policies between brokerages because you must pay commission when you buy or sell. ETFs provides a good lesson of what it’s like to trade individual stocks and bonds in real time and tick-by-tick price fluctuations
For beginners who want to trade stocks, should proceed with caution. It’s critical to learn the terminology and other basics. For example, before investing in a stock you need to know the following information: historical performance of stock, the average rate of return, how the stock performs compared to the S & P 500 over the years, annual dividends and other metrics.
Investing in equities requires patience, perseverance and a plan of action. Avoid the temptation to pick stocks based on tips and hunches.