Three Ways of Protecting Your Investment Portfolio
Rebalance Regularly
Chances are you selected the stocks in specific proportions that are in line with your risk appetite. Over time, stocks will change in price and volatility, which affects the monetary value of the stocks in your portfolio.
That’s why you must regularly reevaluate your assets on a quarterly, semiannual or annual basis. If the performance of a specific stock is favorable, consider liquidating part of your holdings and invest in a different type of stock or asset.
Rebalancing takes discipline – and emotional detachment. For example, you may have to resist an overwhelming temptation to hold on to fast gaining stocks in the expectation that they will continue to rise indefinitely, something that’s unlikely.
Invest in Low-Beta Funds and Shares
Beta is a term used to describe a fund or share’s movement relative to a specific index. If the index gains by 5 percent, a low-beta share would increase by a lower percentage (e.g. 2 percent) while a high-beta stock would gain by a higher margin (e.g. 10 percent).
It would seem logical to accumulate high-beta stocks in order to rapidly grow your portfolio, but this is only one half of the beta assets story. Not only do high-beta shares gain at a higher rate than the index, but they also deteriorate faster.
Low-beta stocks are therefore a tool for portfolio risk management. In the event that the market heads south, low-beta shares will protect gains better than high-beta ones.
When choosing low-beta shares to buy, identify those that have a reputation for paying a decent dividend. This will make up for the opportunity cost of forfeiting the capital gains from high-beta shares.
Leverage the Power of Automated Tools
Persons working in the stock market or portfolio management services usually have the advantage of quickly seeing market changes that could affect their portfolio. For everyone else, keeping constant tabs on your assets can be difficult when you have to balance such attention with your other responsibilities.
This is where investment tools come in handy. These tools ensure you are not caught by surprise when sudden shifts occur. They can inform you when you are too invested in one stock or missing out on gains by not buying the right shares. With their sophisticated and proven algorithms, any volatility is detected. You are notified before your investment erodes significantly. Conversely, supposing that stock is on a streak? Without that notification, you could have easily left thousands of dollars on the table. You can also check the best investing apps by The College Investor.
The nature of markets is a constant upward and downward movement – sometimes quickly and unexpectedly. As an investor, mastering the art of riding the ups and downs is the key to accumulating wealth over the long term. These three techniques will go a long way in helping you achieve that.
James is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.