If you want to become rich and stay that way, you need to develop a recovery strategy for your portfolio. You don’t want to hold on to any stocks or bonds that are not making any money for you, but you also can’t make a decision at the last minute—by that time it is too late.
One of the problems many people have is the lack of financial plan in which they are working from as they make investment decisions. An old saying is simply this: people don’t plan for failure, but they fail to plan. Unfortunately, that holds true of many people whether they are investing in stock, bonds, or real estate. Any investments you make always become part of your portfolio, and you must have a strategic plan that will prevent you from losing capital in the event of an economic downturn or change in the market.
Put aside the economic structure of the economy for a moment and just look at your individual portfolio. With so many businesses failing in the current economic crisis there is a possibility that something you have in your portfolio will face a financial crisis. You have to have a plan to take immediate action to replace any investments that are failing with those who are going to make your portfolio more lucrative over time, even if you are facing a loss. Too many investors hold their failing investments under the illusion that they will rebound eventually, evening out their portfolio return. While this certainly may occur, investors need to know when to ‘cut bait’ on low performing investments.
What is the best way to prevent your portfolio losing its value?
When creating a sound investment portfolio, the first step is to develop a financial plan. Your financial plan should be created relying upon assumptions such as risk tolerance, investment time frame, investable assets and investment goals. When you evaluate each of these factors, an ideal investment portfolio allocation will emerge, relying upon the principles of asset allocation.
Asset allocation refers to diversification within an investment portfolio across given asset classes, based upon the assumption that each asset class will react in a different fashion to underlying market conditions. By diversifying your portfolio according to your ideal asset allocation, you will be maximizing your portfolio’s return while minimizing risk. Once you allocate your investment capital, you will rebalance on a semi-annually, or annual basis.
Partner with a Professional
In addition to developing a financial plan, allocating your investments according to your asset allocation and knowing when to say when, the most successful investors partner with financial professionals to enable them to achieve their financial goals and objectives. Not only do these professionals offer their expertise and experience, they provide an objective point of view regarding when to make changes within your investment portfolio.
Developing a well thought out investment recovery plan will enable you to achieve your financial goals and objectives, despite what financial storm you must weather along the way.
When selecting a financial advisor, remember that the decision is an important one. To ensure that you hire someone who is a great match for you, proactively work to avoid the common mistakes and partner with a financial planning professional who has your best interest at heart.