Managing your own investment portfolio puts you in control of your finances and can save you money. It also teaches you more about investing, which could help you optimize your portfolio for better returns.
If you are a beginner, you may not be sure where to start if you want to manage your investment account correctly. You may even wonder if managing your own stock portfolio is a good idea.
This article will explore how to manage a personal stock portfolio. You will learn the benefits of taking charge of your investment account. Moreover, you will learn about the pro strategies that can help you to maximize your profit and minimize losses.
What Is Portfolio Management?
A portfolio is your collection of stocks. You may also call it an investment account. Some investors may have only a few dozen stocks, while others may have thousands of stocks in their portfolio.
Portfolio management is how you carry out investment strategies. It involves deciding on which stocks to purchase or sell, and when to make those transactions.
The portfolio management task also involves deciding how to allocate assets in the portfolio. There are thousands of stocks from a diverse range of industries and sectors to choose from. To increase your chances of investment success, you should strive to build a sector-balanced stock portfolio.
You can manage your investment account on your own or hire a professional to handle the task for you. There are also automated portfolio management services, or robo-advisors, in industry parlance.
Whether you take control of your portfolio or let someone do it for you, the task will be guided by your financial goals, investment timeline, and risk tolerance.
Should You Manage Your Own Stock Portfolio?
Whether you end up with a profit or a loss from an investment will largely depend on how you manage your portfolio. As a result, the decision to manage your own investment account or leave the task to a professional requires careful consideration.
Managing a portfolio starts with constructing it. For many investors, the greatest challenge comes in deciding the right stocks to buy. You need to research your options carefully to select the best stocks that align with your investment goals and risk appetite.
If you’re afraid of making the wrong decisions and ruining your financial plans, consider getting the assistance of an investment professional. While hiring a professional to run your investment account will cost you money, it can save you from devastating losses.
Although choosing the right stocks to buy can be a daunting task, TipRanks has made the task simple with powerful stock screening tools and insights.
Managing your portfolio on your own will keep you in control of your investments. It can also save you money by avoiding management fees and other costs that come with hiring a professional to run your investment account. Moreover, you can gain more knowledge over time to allow you to invest more profitably.
How to Manage Your Stock Portfolio Like a Pro
Taking charge of your portfolio will give you a chance to try to invest like Warren Buffett. Let’s take a look at the pro investing techniques that can help you construct a portfolio that can return profits consistently.
Set Your Financial Goals and Stick to the Plan
If you are not clear on why you are investing and when you will need the money, it can be difficult to achieve the returns you seek. Your investing purpose will inform the stocks to buy and how long you hold them.
Investors have varying financial goals and timelines. For example, someone investing to fund a vacation may prefer a different strategy than someone investing to save for a house purchase, child’s college fund, or retirement account.
Stock prices fluctuate, and that might make you feel anxious. Instead, once you have decided on your investment objectives and set up your portfolio accordingly, it’s best to sit back and relax, for the most part. Frequently revising your plan in emotional reactions to market volatility can make a bad situation worse.
Diversify – Putting All Your Eggs in One Basket Is Never a Good Idea
The rule of portfolio diversity is that you should invest in stocks with different characteristics. You can diversify your portfolio in a number of ways. For example, you can spread your investments across multiple stock sectors.
You may also diversify by investing in a mix of domestic and foreign stocks. Another portfolio diversity strategy is investing in companies of different sizes, meaning having a mix of micro-cap, small-cap, and large-cap stocks.
A diversified portfolio can fare better than a concentrated one in a volatile market, such as during a recession.
Apply Dollar-Cost Averaging Strategy
In the dollar-cost averaging strategy, you invest a set amount of money regularly, regardless of the market condition. For example, if you decide to invest $2,000 every month, you keep doing it whether stocks are falling or rising. When stocks are falling, this strategy can help you purchase high-quality shares at a steep discount.
The dollar-cost averaging strategy is a smart way to avoid emotional investment decisions that can ruin your portfolio.
Reinvest Those Dividends – They Will Be Worth More in the Future
Not every stock pays dividends. If you have dividend earners in your portfolio, you are generally better off reinvesting the dividends than withdrawing the cash.
That’s because dividend reinvesting is a smart way to leverage the power of compounding. The dividends you reinvest now will earn you more dividends in the future, which will in turn expand your portfolio. TipRanks provides tools to help you screen for high-yielding dividend stocks quickly and easily.
A Long Timeline Works Well – Go For It
Although the stock market can be volatile, stocks have historically delivered profits over the long-term. With a long timeline, your portfolio will have the time to recover from market downturns.
A long investment timeline also comes with a tax advantage. The IRS taxes long-term capital gains at a lower rate than short-term gains. A long-term capital gain is the profit you make after more than a year of investing.
Rebalance the Portfolio – It Helps to Fine-Tune the Strategy Once in a While
While reacting to short-term market movements is not advisable, rebalancing your portfolio occasionally is necessary. It would be easy if you could just set up your investment account and leave it until you need the money. However, it helps to review the portfolio periodically.
Market movements can upset the balance of your portfolio, especially from the diversity angle. As a result, the setup of your portfolio can deviate from your financial goal over time. A periodic review of the account allows you to bring it back on track.
However, you don’t want to tinker with your portfolio all the time. You should aim to rebalance your portfolio once a year or twice a year at most.
How to Manage Your Own Stock Portfolio – Summary
You may want to take charge of running your investment account to be in control of your money and save on professional management fees. If you choose to run your own investment account, TipRanks’ Smart Portfolio gives you all the tools you need to monitor and optimize your stock portfolio.