The best way to manage risk while investing is to spread your money across a range of assets – cash, bonds, shares, and property. Diversification reduces the risk of your portfolio by having a mix of investments so that if one area underperforms you still have other areas working for you.
This does not constitute advice and advice should be sought in all instances before acting on it.
Choose multiple asset investments
While diversification is not a guarantee for growth, a portfolio with a blend of assets will help shield you from the volatility of markets.
It’s important to remember that while you can diversify within one asset class — such as holding shares or equities in multiple companies across different industries or loading your portfolio with property – this won’t protect you if the entirety of the stock market crashes or if the UK housing market experiences a severe downturn.
Think global
Your investments will undoubtedly be affected by the UK economy but current events around the globe could mean some turbulent economic times ahead. It remains a good idea, however, to invest across different countries and regions so you insulate your portfolio from local market volatility as global market performance varies from day to day.
A diverse portfolio and a shrewd long-term asset allocation strategy will also help safeguard against uncertain markets while at the same time provide long-term returns based on your particular level of comfort with risk.
Other Considerations
Remember – while past performance is a good indicator of success, nothing is written in stone. And it’s best to give yourself as much of a head start as possible, but at least ten years should give your nest egg enough time to grow. You’ll also benefit from compounding — when interest or income on capital gains starts earning and growing, too.
When you start to invest will also impact your investment plan. If you start investing earlier on in your career, your choices will differ drastically to someone close to retirement. Risk tolerance is also something personal so manage risk according to your particular financial situation and attitude towards risk. If you’ll need access to cash in the near future, selling an asset when you want to sell it normally yields better results than when you have to sell it.
Keep calm and carry on
Since there will invariably be times of market fluctuations, it’s important to not let emotions run high and dictate your decision making. Keep your eye on the prize and stay focused on your long-term goals. Keep a level head and think before reacting to any short-term market movement. Allow your investments enough time to provide considerable gains before changing course.
As a rule, it’s not the best move to be reactive to any little change in the markets – this usually only leads to losses – so remember why you selected your investments and only adjust your strategy if your reason for investing has changed.
How to manage a successful portfolio
If managing a successful investment portfolio seems like a daunting task, an independent financial adviser can help create a bespoke plan to suit your unique financial needs and the experts at DMFS can also track the performance of your assets to ensure they meet performance goals. So don’t hesitate to get in touch today.
Unsure of your investment strategy?
Investments | Financial Planning | Retirement | Save Tax | Protection |
Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.