Wise Principles of Portfolio Management

Your investment portfolio is an important piece of attaining the financial future you want, but without successful management of that portfolio, your desired outcome could be jeopardized.

Here are our top four principles of portfolio management that every investor would be wise to follow.

Principle #1: Work with a trusted financial advisor

Many people wonder if they need an outside resource to help them manage their investments, especially when it’s never been easier to invest on your own. Those with the knack, desire, commitment and discipline can certainly manage things on their own, but working with an advisor you can trust can be a far more effective approach.

A financial advisor can add value across a full spectrum of your financial well-being, including portfolio value, financial value, and even emotional value. What’s more, multiple studies have shown that working with an advisor, rather than being a self-directed investor, brings a quantifiable increase in return.

For instance, one Vanguard study of more than 58,000 self-directed IRAs concluded that investors who changed their strategy just one time during a five-year period took a minimum eight percent hit to investment performance.*

Principle #2: Invest according to specific long-term financial goals

“Saving for retirement” is a worthy goal, but is it specific enough? Same goes for “building wealth.” What exactly do you want retirement to look like? What would you like to accomplish with your wealth? What legacy do you wish to leave behind?

Defining how you want your financial future to look as precisely as possible will largely determine the makeup of your portfolio, and will be an invaluable guide in making investment decisions. Your advisor will also ensure your asset allocation matches your goals.

That said, realize that the financial objectives you outline today don’t need to be set in stone to get the portfolio management process underway. Even if you make changes to your goals later on depending on family, work, or other life circumstances, it’s still a good idea to map things out earlier rather than later.

Principle #3: Balance time and risk appropriately

The asset allocation of your investment portfolio is guided primarily by two things:

First, your time horizon (which is how many years you have until you will use your investment returns to fund your goals).
Second, your level of risk tolerance (your ability and willingness to lose some or all of your investment with the prospect of greater long-term returns).

Some investors wind up sticking with overly aggressive investments for too long. Your financial advisor will be able to select the appropriate asset allocation for you—and rebalance when needed—to help you minimize your risk at every step on your way to obtaining your goals.

Principle #4: Don’t let emotions dictate your investment decisions

Making investment decisions based on fear, greed, and even optimism can cost you big. Investing—whatever the vehicle—will almost always come with volatility, downturns and upswings. Fluctuations are the nature of the beast, so expect them and stick with your plan, rather than abandon it based on what the market is doing at any given moment.

Your advisor can help you not just create a long-term strategy; he or she can also ensure you stick with it and provide the necessary peace of mind, along with data to help you realize the wisdom inherent in taking the long view.

Do you need an expert wealth advisor to oversee your portfolio management? Learn more about how we can assist you in meeting your future financial needs.