The good news is that there are ways that you can speed the process along if you take the right steps. Here are a few tricks to fast-track portfolio planning so you can simultaneously grow and protect your future finances.
Talk to Your Bank
Before you start trying to grow your portfolio, it’s important you know your limits. Even if you don’t want to borrow this year, talking to your bank or financial planner is a good way to understand more about how your financial health is relative to your investment strategy. An authority from your financial institution can tell you how you structure your loans, equity, and savings. This is an essential step before you start branching out because it gives you a sense of where to set your boundaries. From stocks to real estate, a diverse portfolio can provide a solid foundation to all of your long-term plans. But if you overreach too quickly, you can end up in serious hot water.
Be Wary of Risk Levels
Much like gambling, investing can get out of hand faster than people realise. Setting your own personal risk levels is important to start your portfolio off on the right foot. A higher risk portfolio stands to reap better returns, but the uncertainty and fluctuations can ultimately be too stressful for people to handle in the short-term. Plus, as with all investing, there’s no guarantee that your high-risk portfolio will reap any returns at all. Understanding your own personal relationship with risk can be a complex question to answer, but you need to have some idea of your comfort levels before getting started.
Take the Bull
Investment is a commitment and the successful are ready to give it their all. Passive investing is the act of making a move and then waiting it out. Active investing involves researching, assessing opportunities, and taking risks. An active investor will certainly make a plan for themselves, but they also won’t hold themselves to that plan if something better comes along. As you might have guessed, this more aggressive approach isn’t necessarily recommended for those in their twilight years. Younger people stand more to gain because they have time to learn and grow from their mistakes. Real estate, high-interest savings accounts, and corporate bonds are all excellent ways to diversify your portfolio at practically any stage of the game.
Keep Track of Your Investments
No matter what kind of investing you opt for, keeping track of what (and who) you’re investing in is a good way to square your portfolio and protect yourself from significant errors. And while certain failures can legitimately come from nowhere, there are usually warning signs beforehand.
Let’s say you’ve invested stock in company X because they have an innovative business idea. However, as the stock progresses, you notice unexplained financial patterns and large consulting fees. Another major red flag is an uptick in senior management turnover which could signal unethical or illegal business practices. If you’re not paying attention and selling when you still can, an investor could easily end up in a financial scandal.
Maximise the Good Debt
Investment debt is typically seen as a kind of good debt because it’s tax deductible and it introduces more leverage into your finances. It’s this kind of mentality that prompts people to start making smarter (and more diverse) investments. If you’re looking for straight growth, your focus will be on total capital as opposed to income. (In other words, you won’t mind having your money tied up so long as its growing.)
An income investor will calculate the cash flow they’re receiving from their investments rather than their appreciation, while a total return investor will want to keep a strong balance. No matter which category you fall into though, the principle of seeking out good debt remains the same.
As a general rule, as you approach retirement, you’ll shift from wealth building growth of capital to capital preservation and income.
Source: Roosevelt Investment
Understand Your Bonds
Bonds can be a great way to kick-start and diversify your portfolio, especially if you want it to generate a steady and reliable income. As with other returns, the returns of each bond correspond to the inherent risk. Corporate bonds traditionally offer a higher yield to match the corresponding risks as compared to government bonds. Most bonds increase their yield the longer their maturity date. Investors are highly encouraged to do some long-term planning when it comes to their bond investments. You’ll need to schedule maturity dates for the approximate time you’ll need the principal back.
The better your portfolio, the more you can use your earnings to achieve future wealth. And while there is no short-cut, there are ways to put more effort in today for a better output tomorrow.
If you’re interested in finding out more about how you can use corporate bonds to strengthen your portfolio, contact the Australian Bond Exchange to ask us more about how to make your money work for you.