How to Manage Your Investment? — Portfolio Management Journey

Portfolio management reflects your ability to select and oversee a group of investments that meet your long-term financial objectives and risk tolerance. Sometimes the world of finance seems so complex that investors think that an expert is necessary to manage an investment portfolio. But it is not always the case. If you know how things work, you can manage your portfolio on your own.

If you are familiar with the basic principles of investing, managing an investment portfolio is not very difficult. Whether you get help from an expert or not, here are some things you should know to follow the right steps.

Portfolio Plan

Your portfolio plan is your comprehensive strategy for your investments. A good portfolio plan may include your statement of purpose, a decision-making structure, investment objectives, risk preferences, and a portfolio monitoring process. It would be best if you had a portfolio plan to take further steps on your investment, meet your investment objectives, and manage your risk. Your portfolio plan is your roadmap.

One of the most significant aspects of your portfolio plan is that it specifies the risk distribution of your investments, from very conservative to very risky. To keep track of the risks included in your portfolio plan, first, you should determine the optimal risk level according to your preferences. Then, you should calculate your portfolio risk -which will be mentioned below- so that you can keep the risk under control.

Portfolio Risks

Portfolio risk is the possibility that the combination of your assets in your investment portfolio fails to meet your financial objectives. Each investment within a portfolio has its own risk. Higher risk typically means a higher potential return. For an investor, it is all about finding the perfect balance between risk and returns. Remember that most risks apply to individual investments, but it is also important to ensure that your whole portfolio does not harm you in the end.

Taking risks helps you get rewarded with fruitful returns but taking risks must be managed. It is normal that your tastes of risk change whether you are risk-averse or risk lover. But you should avoid going to the extremes. At that point, it might be useful to get help from a third party that can evaluate your risk choices wisely.

Given the market uncertainties, it is not generally possible to get rid of the portfolio risk completely, minimizing the risk is a more realistic approach. The conventional way of minimizing portfolio risk is investment diversification. Your portfolio should include wise combinations of different kinds of investments so that you are not dependent on the same market conditions. Even if one of your assets fails, another one can still yield return.

Tracking and Follow-On Investments

Once you construct the basics of your investments by preparing a portfolio plan considering your risks, tracking your investments comes as a vital thing to do. It is exciting to track your progress and keep an eye on your investments before deciding to invest further.

There were not many tracking options a decade ago. However, since then, a lot of new applications and services have been emerging to provide various ways for investors to track their investments. These platforms offer you the chance to be aware of your relationship with the business you invest, or access to some educational tools.

An investment performance report might be another indicator for you to assess your investing decisions. These reports give you the needed information to see whether your investment’s risk and reward relationships address your specific needs. The best performance reports give up-to-date information about investment performance clearly.

The main function of tracking your investments is that they give you the chance to evaluate returns. It gives you an idea to decide whether you should invest further, meaning engaging in follow-on investments. Follow-on investments are subsequent investments made by an investor who has made a previous investment in the company, generally a later stage investment in comparison to the initial investment.

For example, if you are an angel investor, you are probably increasingly asked by the companies to make follow-on investments. This can be a tricky decision, and you need effective communication channels. But with a good tracking process, you can weigh the outcomes of your decisions to minimize your risks and achieve your overall portfolio goals. As an angel investor, you should have access to how the company is performing with regards to your initial plan through feedback such as monthly reporting. For the top performers in your portfolio, you might invest additional funds.

Creating a proper portfolio plan, managing your portfolio risks, tracking your investments, and deciding to go on for follow-on investment. This is the virtuous circle of the portfolio management journey for a good investor. If you take well-informed steps, you can be a winner as your journey progresses.

Nurseli Kultufan

Angel Effect Team