Diversity, Diversity, and Even More Diversity
One of the most valuable tips investment portfolio understanding provides is diversity. Seasoned investors as well as those just learning how to create an investment portfolio may easily forget this simple fact.
Every portfolio needs a good mix of stocks, bonds, and mutual funds. You also need to have some short-term growth investments as well as funds placed into an Individual Retirement Account (IRA) or 401K.
Within each investment category, you also should have plenty of diversity. Putting all of your stock funds into one or even two stocks can be a huge mistake. The same rule of thumb applies to your bonds and mutual funds.
Avoid Financial Fees if You Can Help It
Too many banking and investment accounts are flooded with fees from the sponsoring financial institution. If you can help it, don’t pay any checking account, savings account, stockbroker, or other investment-related fees.
Most online brokerages offer no-load mutual funds, fee-free IRAs, and even complimentary use of investment counseling services to their members. If you’re not using such a service, consider it. Buying stocks directly from companies can also save you a lot of money in the long run. After all, you alone should enjoy the maximum benefit of your employment-related labor as well as investment portfolio.
Too many people ignore the concept of having emergency savings. While this technically is not a part of your actual investment portfolio, it is a critical element of your financial future as well as the ability to create your own personal spending plan.
Experts have a variety of opinions on just how much you should set aside. But most financial authors, such as David Bach and Suze Orman, agree that having a contingency fund is essential even before diving into the world of investment.
Consider what could happen if you lose your job today. How long would it take you to find another position? If the answer is less than two months, you might just want to set aside one to two months of the cash it would take to cover bare minimum living expenses. If your answer is longer, then you should set aside money that can get you through at least three months, preferably six to 12 months.
Don’t put these types of funds into investment accounts; that’s like playing Russian roulette with your family’s wellbeing. Instead, place them in short-term CDs (that have a low penalty if you need to break the term) or into a high-yield savings account.
Know Exactly Where You Are, and Where You Want to Go
One of the best tips investment portfolio knowledge offers is to keep financial clarity not just about your investments, but where you hope to take them.
You should keep regular track of your net worth (all of your assets) plus your liabilities such as unsecured credit card debt and student loans.
Also set investment goals, especially based on the year in which you plan to retire. Remember that the fate of Social Security has seemed doomed for years; don’t plan on the federal government taking care of you in your golden years. Instead, focus on diversifying that nest egg and investment portfolio so you can experience true financial freedom throughout all stages of your life cycle.