As you start to earn and save more, you will want to ensure you practice effective portfolio management techniques. We discuss some tips for effective portfolio management separately. Here, we will discuss four of the most important things to avoid while managing your portfolio, followed by how you can receive professional help.
Avoid Going All In
If you see a company or industry doing particularly well, it may be tempting to go all in and invest everything you have in that space. For example, during the Covid-19 pandemic, it may have seemed tempting to invest entirely in biotechnology companies and funds.
However, this line of thinking can be dangerous, as it is important to diversify your portfolio to spread out your risk. Investing all in one sector is too risky because a negative trend in that sector could destroy your savings.
So, be sure to diversify your portfolio in a way that spreads your risk over multiple companies and industries. That way, if one area of your portfolio suffers, other areas can lift it up. Most areas of investment trend upward over time, so diversifying your portfolio so you are invested in numerous types of industries should allow you to increase your savings over time without having to worry about the potential collapse of an industry.
While diversifying your portfolio is crucial, don’t “over-diversify.” In other words, don’t spread yourself too thin to the point where you are invested in more than you can handle. As a portfolio manager, you want to pay attention to your investments, follow them, and make adjustments when necessary. However, if you are invested in hundreds of different companies and/or industries, it will be impossible for you to properly manage your entire portfolio.
The exact amount of investments you should have depends on each person’s unique financial situation. So, we recommend consulting a portfolio management professional to discuss what you should do.
Don’t Try to Predict the Market
Predicting exactly how the market will play out is impossible. If it were possible, we wouldn’t need to write this article! So, don’t try to outsmart the market and constantly buy and sell; it will only stress you out and lead you to make decisions you will later regret.
Instead, diversify your portfolio, invest intelligently in companies and/or funds that interest you (we recommend consulting a professional for advice on what this may look like, as advice for each person will differ depending on each person’s financial situation), and watch your savings grow.
Don’t Sell Everything During Tough Economic Times
It can be tempting to sell your investments when the market spirals. After all, it can be scary to watch your accounts lose thousands (or more) of dollars in a day. You may think that by selling your investments and waiting for the market to go back up, you’ll avoid losing more money.
However, we highly advise against this strategy because, as mentioned above, it is impossible to predict the market, so it will be impossible to tell when it will start to rise again and whether it will keep falling. It is much safer to keep your money invested and let the market correct itself. Throughout the history of the market, it has always corrected itself and grown to new highs after experiencing downturns. This happened in 2008 and during the Covid-19 pandemic, and it will happen again.
Get Professional Help with Your Portfolio Management
If you are not an investment expert, we recommend seeking professional help with your portfolio management. While you would of course have to pay for this help, the amount of money you will make by investing properly will far outweigh the cost of a financial advisor.
If you would like help with your portfolio management, please do not hesitate to reach out. With the full range of accounting services Allman & Allman APAC provides, we are equipped with the expertise for which you may be in need. Seeking guidance from our firm will provide you the opportunity to work with individuals armed with broad and deep financial knowledge, able to provide advice on a wide range of issues. As a full-service public accounting firm, our professional services will surely help you succeed and thrive. Please feel free to reach out to Allman & Allman APAC via email at Genna@allmancpa.com or via phone at 760-773-1120 to discuss your situation and find out how we can help you grow. We look forward to hearing from you.