Investors always look for ways to improve their portfolio in order to minimize risk and increase profits. Some of the key techniques to improve the portfolio include diversification, rebalancing, asset allocation, controlling investment costs and analyzing market trends. If you follow these simple techniques, you can gain higher returns on investment.
Diversification of portfolio:
You should diversify your investments and choose the right strategy for you to minimize the risks and also improve your returns on investment. You should invest in various assets such as commodities, stocks, bonds and other collectibles in smaller proportions to have a diverse portfolio.
You should always choose assets that move in opposite directions. For example, when stock prices go up, securities and bonds go down and when bonds go up, stock prices usually go down. Hence by investing in different asset classes you will always be profitable because, even if one of the assets goes down, other assets will be increasing in value.
When you are investing in stocks, you should not concentrate on one particular company because if that company falls, your entire investment will suffer losses. Hence you should choose among 10-20 top performing companies and invest your money in all these stocks. You should diversify the portfolio of stocks based on market-cap of companies ranging from small cap, mid cap and large companies. Also when you invest in bonds choose them with different maturity periods, duration and credit qualities so that you will get decent returns even if one of the bonds is not yielding good interest.
Choosing the Right Assets:
Whenever you choose assets like stocks, bonds or commodities like Gold or silver, you should choose them based on market trends, risk tolerance and how much duration you can to wait in order to reap the profits. Determining the right assets is very important as an investor and should match with your long-term goals. Equity funds are good assets if you are considering long term investment. You should have a clear investment plan and diversify your assets to protect yourself against market fluctuations and unexpected losses. It will help you as an investor to improve your portfolio and maximize benefits. Always the major asset classes are correlated and this needs to be studied carefully to understand which assets you can choose to have a profitable portfolio.
Modifying the Assets Based on Market Trends:
After investing in the right assets based on the long-term strategy and investment goals, you should keep watching the market trends and rebalance your investments in order to adapt with changing trends. Since each asset differ in its performance and will yield profits at different time frame, you should know when to modify your asset portfolio based on market trends. You should always analyze the risk/reward profile of an asset and the current market trends before making any changes in your investment portfolio. You should always maintain the balance in your asset diversification and make new investment decisions carefully.
Controlling Investment Costs:
It is also important to monitor the investment cost when adding more assets to your portfolio. The investment cost compromises of trading expenses, taxes paid and also management expenses. The expense/reward ratio should be kept in mind before adding new assets to the portfolio. You can invest in low cost assets like index funds and ETFs to minimize your risks.
Analyzing Market Trends:
You should always keep analyzing the market trends using both Fundamental and technical analysis in order to improve your portfolio. You should understand the correlation strategy which implies that all assets are correlated and dependent on one other.
Positive correlation – It means that assets will move in tandem i.e., if the price of one asset moves up, others are also expected to go up.
Negative Correlation – It means that assets will move in reverse direction i.e., if price of one asset goes up, other assets will go down.
You should be aware of all these trading strategies and also know how to read various technical charts to analyze the market situation and choose the right assets.