MANAGE YOUR INVESTMENTS LIKE THE “PROS”
How to Have a Successfully Self-Managed Portfolio
by Laury Adams
Managing one’s investments offers challenges and opportunities. Far too often, we become head-in-the-sand investors treating our investments like an unattended garden hoping to some day discover amazing growth with no effort on our part. Or we act like a “nervous Nelly” managers constantly buying and selling in hopes of reaping quick profits. We need to have patience and a steady approach to achieve our goals in the money game. Vigilance is necessary to prevent unexpected “detours.”
The level of risk can be determined by our objective—GROWTH or PROTECTION? As we age, the later is usually more important.
We can best determine our level of risk by staying aware of market “realities.” We were confronted with a new reality between March 24, 2000 when the S&P 500 stood at 1527 and Oct 9, 2002 when it sank to 777. This stock index declined 47 percent, the greatest loss in our lifetime! Steep market declines make some people so fearful they are afraid to take any risk at all. But others quickly forget such a decline, take no caution, and plunge into investments.
Although diversification in a portfolio may be one way of spreading risk, it is often mistaken for limiting risk. Diversification does not always reveal the amount of risk in a portfolio. For that reason, I developed the concept of “Asset Risk Allocation,” a unique way to analyze risk in one’s portfolio. The percentage of total holdings in non-retirement and retirement accounts is calculated in each of the following five categories: Conservative; Conservative Growth; Moderate Growth; Growth; Aggressive Growth. This makes it possible for each investor to customize a portfolio based on their tolerance for risk and desire for protection.
Most individual investors are not inclined to rebalance their portfolios. No one likes to get off the back of a winning horse or walk away from the gambling table when experiencing a winning streak. Likewise, when we are raking in profits, we are reluctant to sell winners in order to reduce the risk in our total portfolio. What’s more, we often rationalize keeping these winners by saying we don’t want to pay tax on the profits that would be incurred on a sale.
But if we have losses, we are tempted keep these investments hoping the losses will eventually turn into profits. Of course, the best course of action is to reposition our holdings by selling the least desirable investments.
Advantages:
Strategies for Self-Managed Portfolios
What do you want your money to do for you?
What are you willing to do with your money?
Check percent in each category:
Can you sit through a time of crisis with no panic?
Check your positions in each category:
So you want to be an investor? GET REAL! |
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Are you ready for the ride? |
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Rank |
Date Started |
Ended |
Days |
% of Loss |
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6 |
6/17/1901 |
11/9/1903 |
875 |
46.1% |
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3 |
1/19/1906 |
11/15/1907 |
665 |
-48.5% |
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9 |
11/21/1916 |
12/19/1917 |
393 |
-40.1% |
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5 |
11/31/1919 |
8/24/1921 |
660 |
-46.6% |
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4 |
9/3/1929 |
11/13/1929 |
71 |
-47.9% |
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1 |
4/17/1930 |
7/8/1932 |
813 |
-86.0% |
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2 |
3/10/1937 |
3/31/1938 |
386 |
-49.1% |
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8 |
9/12/1939 |
4/28/1942 |
95 |
-40.4% |
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7 |
1/11/1973 |
12/6/1974 |
577 |
-45.1% |
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10 |
1/15/2000 |
10/9/2002 |
999 |
-37.8% |
Note: The 37.8% was the decline on the Dow.
The S&P 500 declined 47%!