1. Home
  2. Blog
  3. Saving
  4. Things to Remember When Balancing Your Investment Portfolio
briefcase with a dollar sign on a yellow backgroundAnd as the old adage goes, you shouldn’t put all of your eggs in a single basket, and this is especially true for investments. But with so many baskets out there – stocks, bonds, mutual funds, foreign stock, short-term investments and investment properties – it’s hard to know how to divvy up your hard-earned dollars. Risk and return are the main considerations for any investor trying to balance their portfolio. In some cases, higher-risk investments have the opportunity to perform better than lower-risk investments. That being said, they also have the potential to go belly up. Similarly, low-risk investments may be a safer option, but they might not produce the necessary return on investment. In order to create this balance, you must create a portfolio that has both riskier and safer investments. While there’s not a definite “best portfolio” in existence, there are some aspects that you should consider when balancing your portfolio.

Why Investments?

The majority of Americans are spooked by tucking their money away in investments. This is not surprising, especially considering the recession we just crawled back from. But what most people don’t realize is that the S&P 500 has risen over 200% since it spiraled downward in 2008-2009, meaning that people who kept their money on the sidelines missed out big. If you’re interested in learning more about the overall reliability of investing, check out this article about investing in the stock market.

Strategy Matters

Before you begin investing, you need to think about how much you’ll need. Remember, the main reason you’re investing is to prepare for retirement. Sure, you can go after the boat, the cabin in the mountains or even the island in the Philippines, but for most of us, it’s all about the golden years. While you don’t need to know an exact number, it’s good to think about how much you and your family will need to live comfortably each year. So take a look this helpful retirement calculator to get you started.

The Investment Breakdown

Diversification is the name of the game when considering investment portfolios. You should separate your investments, thereby minimizing your overall risk. Take a look at this useful breakdown from Ibbotson Associates.

Not only does this show helpful investment mixes, it also gives you options for your risk tolerance. Time is the biggest advantage to investors, so the younger you are, the more likely you should be going after aggressive growth. If you are more interested in maintaining your investments than growing them, consider the balanced and conservative portfolios. And as you reach retirement age, you should continue investing, but your strategy will likely need to change again. To learn more, check out this article on investing in your seventies and beyond.

Investment Property

real balanced portfolio pic

Another way to diversify your portfolio is through investment property. This refers to buying a house or apartment and renting it out to tenants. Depending on your situation, these investments will usually receive between four and 10 percent, but receiving more than that isn’t unheard of. The beauty of using investment property is that you are directly connected to your profits. A new door or dryer for the building could improve your ROI. This connection isn’t nearly as significant in other forms of investments. For instance, even if you filled your fridge to the brim with Coke products, their stock probably isn’t going to rise. Investment property is a great pursuit for those who want to have a little more control over their financial futures.

But rentals are a double-edged sword. Between tenants and house repairs, owning an investment property can have some sticky surprises. Still, this is a great option for some. If you think you have what it takes to be a landlord, check out this article about the pros and cons of owning investment property.

The Great Balancing Act

Ultimately, deciding where to put your investments is a decision you’ll need to figure out. But you don’t have to do it alone. If balancing your portfolio seems confusing or intimidating, don’t hesitate to speak with a financial advisor. Whatever you choose to do, make sure at least a portion of every month’s paycheck is going into investments. Whether retirement is two years away or 20, you should start preparing now. Time is the biggest asset when preparing for this next step. Use these tools to begin balancing your own investment portfolio and set your future into place.

Leave a Reply

Your email address will not be published. Required fields are marked *