If you are saving through investing, personal portfolio management is one of the major things you should be doing to mitigate the risks arising out of investments, and maximising the return potential of your portfolio. It also allows you to align your portfolio with your investment objectives optimally.
Despite geopolitical risks, recession fears and a bit of earning slowdown, the year 2019 has been phenomenal in many ways. The mainstream indices in the country are trading near to all time high levels.
Over the year to 23 December 2019, the S&P/ASX 200 Index is up by ~24 per cent. And, the All Ordinaries Index is up by the same level.
Now that you will be entering into a new year with your portfolio, this could be the opportune time to reconsider your portfolio strategy. A new year will bring new opportunities and new commitments in your life, you should have a portfolio strategy that is aligned to meet your short-term as well as long-term objectives.
Let’s look at some portfolio moves;
The capital allocated in your equity investments would not be similar to what it was a year ago, and as the market has done reasonably well, the general consensus is that your portfolio would have been better as well.
If your allocation into equities have had a decent year, and it does not replicate the risk or composition you wanted with your equity portfolio, then it is the time to make that shift and realign your equity portfolio with the best investments under your conviction and your risk appetite.
For a retiree, it might be the time to move away with the risky investments, considering the level of conviction retiree has about the risky investments. They can lookout for opportunities that are much more convincing compared to the investments carried in the portfolio.
For a young investor, it could be the best time to shore up the equity weightings in the portfolio and minimise the opportunity costs that are arising out of the available attractive opportunities presented by markets.
A year is almost passed, and there would have been many changes in the companies held in your portfolio. Similarly, this is the time to revisit your portfolio and envisage the expectations of your portfolio companies.
An investor should revisit his/her short-term goals and long-term goals and align the portfolio expectations based on those goals. This is the time to reconsider what has been going on with your portfolio and what you expect from your portfolio to deliver.
Revisiting your portfolio would allow you to perceive the risks associated with the investments. And, it could be possible that over the past year, the risks from some investment in your portfolio has shot up while risks from some investments are minimised.
After a considerable thought into your portfolio, you would be able to manage your expectations according to the portfolio.
After you have revisited and rejigged your expectations, the next step would be to assess the risky investments in the portfolio and deciding the fate of these investments. Selling out of highly risky investment is a conventional approach that investors follow, which seems right. However, the question that arises here is the utilisation of funds that would be pulled out of risky investments.
With bonds yielding minimal returns, the use of excess cash funds could be utilised to invest in attractive opportunities presented by the equity markets. And, it is, indeed, a kind of blessing to have some free cash available in your portfolio to make the most in short-term when markets are heading south.
Meanwhile, reducing risk can be done through diversification of the capital employed in the portfolio, and the market provides ETFs to diversify the risk at a broader scale within diversified asset classes, including equity, bond, commodity etc.
As the year has almost passed, it’s the time to review the winners and losers in your portfolio. This allows to rethink on the beliefs of your investment decisions, and it also gives lessons on things that did not work out in your favour.
Looking at losers and winners, you will get the feedback of your investment decisions over the year. In this way, you can analyse the shortcomings over the investment decision, and it would allow you to improve your investment decisions for the future.
Moreover, the year-end portfolio review is the time to awaken your investor soul and tweak it according to the need of the market presently. Deriving better results through the feedback from your investing experience over the past year will make you a better investor for tomorrow.
Get a wish list
If you believe that markets are expensive presently, you can start preparing a wish list, which would include your probable investments. In this way, you can track your desired companies, and invest in those companies when your expectation matches the price.
Just as you get your shopping list ready before Christmas, you should get your investment list ready. The wish list would allow you to trace your desired investments when markets are suffering a downturn, and everything is looking cheap.
And, the wish list is just not for the year-end, and you can use this technique continuously whenever you find a good business or when you come across any investing idea. Therefore, wish list could be updated regularly.
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