ARE YOU currently ENCOUNTERING fluctuations in your investments? Are you a trader or an investor?
These are the usual questions we ask our fellow investors this season. Due to the changing economic landscape, we always emphasize the importance of a diversified portfolio.
You always hear the phrase, “Don’t put all your eggs in one basket” to manage risk and maximize profits.
Diversification is having a variety of investments. If we invest in vehicles that are not directly correlated, we can be more comfortable because if one asset class is not performing well, there is a chance that the other assets will perform better. We must remember that investing is all about discipline and strategic thinking, this concept will help you become wise in deciding where to invest.
Here are five steps that can help you achieve a diverse portfolio.
1. Know the risks of asset classes.
Each type of investment has an inherent risk-reward ratio. For example, investing in the stock market or in cryptocurrencies brings more reward but, at the same time, it can also fluctuate greatly compared to other types of investment such as money market funds, bonds or money. immovable.
Understanding the potential movements can help you decide whether the percentage you will allocate to a type of asset is risky. A classic example is to divide your portfolio into three types of assets, say you allocate 33% each to a conservative, moderately aggressive and aggressive type of fund. It will bring you more security.
2. Consider the average cost in pesos.
Add to your investments on a regular basis. If you have 10,000 P to invest and regularly add the same amount on a monthly basis, you will buy more stocks when prices are low and less when prices are high. Stable investing can help you increase your investment volume over time.
3. Set your entry and exit point.
In each type of investment, setting parameters will help us determine when to capitalize profits and when to mitigate losses. If you are new to investing, setting a sell or buy signal through fundamental and technical analysis can help you make a good decision.
You can also get information from seasoned investors, but having your own belief can help you better synchronize the market and align it with your goals and timeline.
4. Rebalancing of the allocation after five years.
Whenever our season of life changes, we may also consider rebalancing our portfolio allocation. For example, if you are single and have minimal responsibilities, you can choose a more aggressive allocation to maximize returns. For someone who has a family and kids going to college, consider a moderately aggressive and conservative investment allocation to maintain the value of the investments. Always check your season and your goals to avoid wasting your hard earned money.
5. Study your options.
Choosing the platform suites will involve more time for you to study the pros and cons of the asset types. Here is a quick summary of the asset classes.
1. Stock exchange
Investing in the stock market can be direct or indirect. Direct investing means that you will be the only one buying and selling your selection of stocks through online or traditional brokerage firms. If you invest in stocks, it is considered a high risk, high return type of investment.
2. Real estate
Real estate is a less aggressive type of asset than the stock market. Property values increase over time and demand is constant depending on location and type of development. If you plan to create passive income in the future, this may be a suitable type of investment for you.
3. Real Estate Investment Trust (REIT)
A REIT is a company that owns income-generating real estate through rental properties. It’s like mutual funds; REITs pool the capital of many investors. This allows individual investors to earn dividends on their real estate investments without having to buy, manage or finance properties themselves.
Here in the Philippines, REITs are becoming famous due to the many launches since last year from big developers like Ayala Land, Megaworld, Double Dragon and Robinsons Land. This is accessible through online brokerage platforms.
4. Life insurance
Getting an insurance plan is one of the cheapest assets. Once you are covered by life, accident or sickness guarantees, the company will assume the risks associated with the expenses to avoid the depletion of your savings and investments in other types of assets. Adequate coverage can help you get protection for your family in the event of unforeseen life events.
Karlo Biglang-Awa is a registered financial planner with RFP Philippines. To learn more about personal financial planning, attend the 92nd Bidding Program in October 2021. To inquire, email [email protected] or send an SMS to 0917-6248110.