Every person hopes to one day achieve financial freedom. However, it’s difficult to realize this freedom if you’re hesitant to develop a suitable portfolio. If you’re planning to invest your life fortunes, several factors come into play. For instance, it’s generally believed that the earlier you can start investing, the better. Additionally, you should set projections for when you would like to retire. Retirement should be less about the consequence of advanced age and more a decision to focus on something else, maybe your portfolio management.
There are several areas that you can invest in. Suppose you have a desire to invest in the real property market. In that case, you need to have a road map of where to invest, the type of property you want to build, your projected income, and how to finance the investment. With the help of a real estate investment firm like Fundscraper or other reputable companies in your area, you can get help in ensuring that your investment is tailored to meet your goals and needs.
To help you know how to tailor your portfolio to align with your needs, here are some crucial considerations you need to make:
Make Time Projections
The purpose of this step is for you to be aware of when you expect your investments to bring in returns. This time horizon objective sets your perspective on the future. For instance, ask yourself these questions: When would you like to retire and still have cash flow? How quickly or slowly do you prefer your investment to grow?
In a nutshell, your choice of investment should be ready to bring in money at the right time according to your plans. Additionally, you may diversify your investments to have different income streams. Thus, you should consider asset allocation in areas such as stocks, bonds, or other securities.
Therefore, good planning should put your age, retirement plan, cash flow needs, return expectations, risk tolerance, and liquidity needs into consideration. Failing to do proper planning may see you deplete your funds in retirement.
Know Your Investment Goals
The crux here is for you to consider your cash flow targets within your time projections. The top mistake that you should avoid is jumping into a portfolio without clearly defined objectives. So, you need more than having enough savings for your investments. By setting investment goals, you’ll have a framework that you can use to monitor the performance of your business. Therefore, know and articulate your goals. Here’s a shortlist of questions you can ask yourself to help you understand your investment goals:
- What’s your desired retirement lifestyle?
- Would you like to leave behind wealth that can last several generations?
- What will your retirement expenses involve?
- What kind of asset allocations can generate the income you need?
- Which types of investments are manageable during retirement?
Your investment goals may also be affected by discretionary and non-discretionary expenses, which impact your income needs and growth. Non-discretionary payments may include living expenses, debts, income tax and capital gains taxes, healthcare costs, and insurance bills. On the other hand, discretionary activities include planned travels, hobbies, and luxury purchases.
Choose Between Liquid And Illiquid Assets
When choosing between investment assets, there are two categories that you can choose from: liquid and illiquid assets.
- Liquid Assets
Liquid assets are investments that are easy to buy and sell. Among the leading liquid assets are stocks. The pricing of stocks is typically fast and efficient, except when trading a vast number of shares. Stocks transactions are done in a matter of seconds, and your cash is remitted within 78 hours. Moreover, you can get the money faster through a brokerage house in case that’s what you want.
Another category of liquid investments is bonds, though they’re not as liquid as stocks. The disadvantage with bonds is that they’re mostly transacted over the counter. As a result, they’re time-consuming and challenging to trade.
- Illiquid Assets
These refer to assets that aren’t easy to sell. Examples of illiquid assets are real estate, annuities, and non-traded real estate investment trusts (REITs), among others. You can’t sell them overnight and get the market value. For instance, if you want to sell a house, it might take you months before getting a potential buyer. Even after you sell the house, the finances may remain on escrow for a few days. Additionally, they involve inspections, closing costs, and commissions, which makes the process costly and time-consuming.
Non-traded REITs, unlike typical REITs, aren’t sold and bought on exchanges. Additionally, they don’t have transparent values, which causes makes it hard for investors to determine their price.
Implement Portfolio Rebalancing And Weighting Strategies
These strategies are essential for all value investors. Portfolio weighting refers to the investment percentage held by a specific holding. Best wealth management practices require individuals to calculate portfolio weighting for an asset, sector, category, or individual stock. It’s determined by dividing the present value of an asset(s) by the total value of your investment.
On the other hand, portfolio rebalancing is buying and selling assets to get the desired weighting for each asset. Portfolio rebalancing is mostly done because of changes in asset prices. Also, it could result from the need to change target asset allocation (reweighting).
It’s easy to implement both portfolio weighting and rebalancing using a tactical asset allocation. Tactical asset allocation outweighs the fixed one because it enables investors to adjust their target asset allocation.
Moreover, portfolio weighting and rebalancing based on valuation play significant roles in reasonable risk management plans. You should implement this strategy to reduce portfolio risk and leverage price-based opportunities.
Securing the future with an investment plan is essential. It might benefit you when you retire from active employment and when unfortunate events happen, such as being retrenched from work. By choosing investments tailored to your needs, you can ensure that you’ll continue to have cash flow. However, you need to align your portfolio with your financial goals, especially your long-term plans. As you develop strategies for your investment plans, factor in the time frame when you would like to bring in returns.
With that said, you should invest as early as possible to allow your portfolio enough time to grow. Moreover, investment diversification is essential to help you have several financial streams. Finally, have a range of investments to cater to the anticipated lifestyle you envision.
I am Tristan who loves to ride and spend time with my jenny (horse) and my love Mark. After completing my graduation, I have been working as an accountant in a private firm in Cologne.