Considering recent market events and the condition of the economy, most investors are thinking about making changes to their investment portfolio. However, this doesn’t mean that you have to make rapid investment decisions without thinking about your long-term financial goals. Of course, you want to manage your investment portfolio to make maximum returns and in order to do so, there are some things to consider before you make any decisions. Shay Benhamou sheds some light on what these things are and you can take a look at them below:
- Draw a financial roadmap
First things first, Shay Benhamou says that you cannot make an investing decision until you take a look at your whole financial situation, especially if you have never had a plan before. You need to figure out your risk tolerance and goals in order to invest successfully. While there is no way to guarantee that you will be able to earn money from your investments, but having an intelligent plan can help you in gaining financial security over the years.
- Consider your comfort zone
It is true that all investments will have some degree of risk and Shay Benhamou believes that before you make any investment, you need to know that you can lose some or all of your capital. This means you could end up losing your principal. Hence, you need to evaluate your comfort zone when you are taking risks. If you have a long-term goal, you can make more money if you take on more risk by investing in assets like bonds and stocks, or you can invest in cash equivalents if you want to achieve short-term goals.
- Always have an emergency fund
As per Shay Benhamou, every smart investor will always put enough money in a savings product for covering an emergency, such as sudden employment. Some people make sure that they have at least about six months of their income saved, so they will have it at their disposal when they need it.
- Pay off any credit card debt you may have
The problem with credit card debts is that they usually have a high interest rate. Shay Benhamou suggests that paying it off first should be your priority because there is no investment that can offer you a long-term return that will beat what you save from paying your debt. When you pay it off, it also has a positive impact on your net worth because it will no longer be held back by finance charges and interest payments.
- Think about dollar cost averaging
The best way of protecting yourself from the risk of investing your entire capital at the wrong time is dollar cost averaging. Shay Benhamou explains that this strategy involves adding new money to your investment consistently over time. When you make regular investments each time with the same amount of money, you can purchase more of the investment when its price is low and less when the price is high.
- Rebalance your portfolio occasionally
Rebalancing your portfolio means going back to the asset allocation mix you had previously. Shay Benhamou states that doing so will help you in ensuring that your portfolio doesn’t overemphasize on any of the asset categories. This can return your portfolio to a level of risk you are comfortable with. You can rebalance your portfolio based on your investments, or on the calendar. It is recommended that you rebalance your portfolio at a regular time interval, such as every six months or twelve months. This way, the calendar will remind you of when to consider rebalancing.
According to Shay Benhamou, you can also rebalance when an asset class’s relative weight decreases or increases more than a specific percentage that you have mentioned in advance. The benefit of this method is that your investments will tell you when you need to rebalance. Either way, this works best when you do it on an infrequent basis.