Everyone wants to strike it rich in the stock market, but not everyone wants to- or even knows how to- put in the work to maintain a healthy portfolio. A financial portfolio is a collection of assets that includes, among other things, stocks, bonds, and property. The portfolio is a positive investment when it meets an expected return on investment (ROI), your risk tolerance, and the asset liquidity. Obviously all investors wants to maximize ROI, but not everyone wants to accept the risk of uncertainty or barriers to converting investments to cash. By taking steps like hiring an investment advisor and spreading your risk, you can give your investments a health injection in 2018.
Finding Your Professional Investment Advisor
Almost anyone with minimum qualifications can identify themselves as a financial coach, financial planner, or financial advisor. As a result, you need to be mindful when you select a professional to help you protect, grow, and save your hard-earned dollars. Look at these key areas when choosing your financial guru:
It’s up to you to do your due diligence and research your potential financial advisor’s skills and background. Read reviews, ask for recommendations, and make sure their strengths align with your goals. You want an advisor with experience in your specific needs, whether those are personal, family, or business-related. Like any other professional, they tend to serve niche markets, so you want to find an advisor who works in yours. Establishing such credentials takes more than a resume- advisors must register with the U.S. Securities and Exchange Commission (SEC) and may also be Certified Public Accountants or contracted with brokerages. So, you have a lot of tools and resources to use in your quest to find the perfect financial advisor.
The Certified Financial Planner (CFP) designation is awarded to those who complete rigorous studies and testing. Experienced advisors may also have designations such as Chartered Financial Analyst (CFA), Certified Life Underwriter (CLU) and/or Accredited Financial Counselor (AFC). Certifications alone guarantee nothing, but they are a sign of the advisor’s commitment, focus, and discipline.
You need to know how your advisor is paid and understand the pros and cons of their payment arrangement. They may charge you a fee, or they may earn based on commissions. If they work for commissions, you need to be aware of the threat of conflict of interest arising if they direct you to invest in their employer’s investments. Based on that, you might prefer an arrangement that's based on hourly fees, flat fees, or a fee based on assets under management. In any case, you want to have a clear understanding of your advisor's charges for services and investment vehicles.
A financial portfolio is a long-term commitment, so you'll need to know your contact well and be comfortable working closely with them for the long haul. Your advisor should have a special interest in your personal and business needs- an interest strong enough to proactively make suggestions when they identify an opportunity that would be beneficial for you. Your advisor must not only keep your risk tolerance and goals in mind, but also anticipate changes in your tolerance and goals as you age or your income level changes. This kind of on ongoing attention and adjustment takes more than just an annual meeting- it's important that you and your advisor are in regular, thoughtful contact.
Spreading the Risk for a Healthy Financial Portfolio
Stocks and bonds are only two investment vehicles- there are also Certificates of Deposit (CDs), annuities, mutual funds, commodities, and Real Estate Investment Trusts (REITs) among others. The best portfolio includes a variety of asset types in order to spread your risk. Your ability to diversify the investments grows with the size of the portfolio, so it makes sense to discuss your plans to diversify with growth when you start your financial advisor relationship. Here are some important things to know as you begin your investment process:
Bonds aren't as volatile as stocks, and generally offer slow, steady growth. Because bond selection can be complex, you might favor bond funds. You may be familiar with mutual funds, which pull several stocks into one vehicle to capitalize on their shared growth and potential, and bond funds do the same for bonds. Some bonds also have a tax-free status, which can benefit your individual plans, and other bond funds include foreign investments that can balance changes in U.S. markets.
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Commodities refer to basic goods like oil, corn, and wheat. In most cases, commodities produce a steady growth to offset the market swings of equities (common stocks).
The value of commodities is purely a function of supply and demand, so they can be influenced by many external factors. Unlike equities, commodities require a thorough understanding of how the commodity in question is used and how the future may affect its value.
Your portfolio depends on your contributions. Regular contributions build the portfolio and discipline your commitment. You can contribute monthly, annually, or quarterly, but you must commit to regular investment. You might link the investment pattern with other expenditures like estimated taxes. Once your commitment shows growth, you can reconsider your spread of risk.
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Don't just walk away from your financial portfolio and leave it to your financial advisor. You should devote some time to reading about the market, watching your volatility, and looking for attractive opportunities. You must sync with market swings and trends. Keeping a financial portfolio intact will see growth, but you must also prepare to sell or shift investments in the face of political, international, and economic events. When an asset becomes a liability, it undermines your entire financial portfolio.
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