If you want to make investing a success it is key to have a well-diversified portfolio. As a solo investor, it is imperative that you know how to determine an asset allocation that best suits your personal goals. The ultimate goal is for your portfolio to meet your future capital requirements without the cause of any stress or anxiety. Investors can create portfolios in cohesion with any investment strategy by following a systematic approach. Here are what we feel are the essential steps to take an approach to build a profitable forex investment portfolio.
- Determining asset allocation
- Creating a portfolio
- Reassessing portfolio weightings
- Strategic rebalancing
Determining asset allocation
Knowing what your individual financial goals are is always the first task when it comes to being an investor, whether you’re online trading in the UK, or online trading in the US. An important factor to consider is time. Time correlates to age and how much you have to try and grow your investments while turning your capital into something that will help you to achieve any future financial needs. If you’re an unmarried 22-year-old with little in terms of commitment, your strategy will differ compared with a 55-year-old who is married with children.
Creating a portfolio
When you know the allocation of your assets you need to split your capital between the appropriate asset classes. This is not so difficult on a basic level: bonds are bonds and equities are equities.
You can look to further break this down from classes into subclasses. An investor may divide the equity of their portfolio between varying industrial sectors with companies of different markets or between foreign stock and domestic. The bond terms could be allocated between short and long term. There are lots of different options and the more you have, the better balanced your portfolio will be.
Reassessing portfolio weightings
Once you have established a portfolio, it is crucial to analyse and rebalance it regularly, due to price movements changing compared with your initial weightings. To fully assess your portfolio’s true asset allocation, you should categorize the investments and determine their value as a whole.
Varying factors are likely to change as time passes, and so will your financial situation and future goals. When you notice either of these changes, it should be a strong indication that your portfolio needs adjusting. No matter the change, regular reviews will help you to know where to take your portfolio at certain moments.
When it comes to rebalancing, you need to know which of your positions are overweighted and which assets are underweighted. Bringing balance from places that are heavier on a certain side will help to change the trajectory of your portfolio if you find that it isn’t performing in the way you desire.
If your investment in growth stocks has appreciated in a very positive way and you’ve sold all of your equities to rebalance your portfolio there is a chance you could feel significant capital gains taxes. In a case like this, a better strategy could be simply not contributing to these new asset classes in the future and continuing to contribute to other asset classes. Your growth stock will be reduced in your portfolio over time without incurring much in capital gains taxes.
This being said, it is always important to consider the outlook of your securities. If you find that those overweighted growth stocks are looking like they’re going to fall, you may want to consider selling in spite of the tax implications. Using research reports and analyst opinions is a great way to gain extra help in gauging the outlook of your holdings.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.