Maintaining and Growing Your Investment Portfolio Conservatively
Generally, Windward recommends that you leave portfolio construction to a professional investment adviser, especially if you are investing a significant percentage of your total wealth, or if you're relying solely on the success of your portfolio to meet your future financial goals. However, whether you or your adviser designs your portfolio, consider a few of our guidelines.
The mix of stocks, bonds and cash is often the most important decision in portfolio construction. Bonds and cash are generally less volatile than stocks. Stocks increase risk while bonds and cash decrease risk.
The term "time horizon" refers to how long you plan to keep your money invested. Your time horizon affects your portfolio design because the longer you plan to keep your money invested, the easier it is for you to ride out dips in the market. You may be able to tolerate more volatile investments, with potentially higher returns.
Your personal risk tolerance also affects your portfolio design. Can you sleep at night knowing that a sudden downward shift in the market could cost you a significant portion of your principal? If not, a portfolio that holds a high percentage of aggressive growth stocks, for example, is not right for you. You should match investments to your personal level of risk tolerance.
Your personal liquidity needs may eliminate some of your investment choices. If you periodically need access to your investment dollars, it makes no sense to design a portfolio dominated by assets that can't be readily sold. Instead, you'll need investments that can be converted to cash easily and quickly.
Finally, how is the market valued? Are portfolio valuation ratios such as price earnings and price book, higher or lower than usual? Low valuations may indicate a buying opportunity while high valuations may indicate it's time to harvest gains.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2010