How to Improve Your Investment Portfolio

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How to Improve Your Investment Portfolio

Successful investors know how to make a portfolio work. However, you don’t need to hire a professional to make money in the stock market. If you’ve recently expanded your budget to invest money or are planning to enter the market, follow these timeless concepts to lead to the best outcome for financial success.

Allocate Your Assets

Allocation refers to where you place your investments. There are a variety of classes of stocks and bonds that offer different risks and rewards. Asset allocation is the most important factor in determining the expected long-term performance and return variability of an investment portfolio. Time horizon, financial situation, and risk tolerance are important considerations when choosing where to allocate your assets. Stocks are the riskiest asset, while bonds are less risky and cash has no risk at all. A sensible investment plan begins with an individual’s long-term financial goals. These include a savings and spending strategy, as well an emergency fund plan. Having a broadly-diversified portfolio is the best way to make the most money.

Rebalance Your Portfolio

After selecting and implementing your asset allocation, it’s vital to maintain it through time. Different investments generate different returns over time and initial projections can drift from their targets. This can result in the creation of a different risk-and-return situation that’s not appropriate or advantageous for your needs. The goal of a rebalancing strategy is to maintain a targeted risk rather than maximize a return. Put your portfolio back on track by rebalancing your portfolio regularly.

Value Versus Growth

There are two fundamental approaches to stock investing: growth and value. Growth investors seek companies with strong growth earnings while value investors seek stocks that appear to be undervalued by the marketplace. When considering where to invest your money, remember that value companies have outperformed growth companies both in the United States and international markets.

Equities Over Bonds

An equity fund is a mutual fund that invests principally in stocks. They’re great options because they can be managed either actively or passively. Equity markets have consistently outperformed the bond markets over time. While equities do carry higher risk than bonds, a manageable combination of the two in a portfolio can offer an attractive return with low volatility.

Dividend Stocks

Blue-chip dividend stocks are wise investment choices for a diversified portfolio. A dividend is defined as a payment made by a corporation to its shareholders. Usually these payouts are made in cash (called “cash dividends”), but in other instances, companies will distribute stock dividends to shareholders. In a struggling market amid economic growth concerns, dividend stocks are more likely to generate better returns with less volatility.

Track Quarterly Reports

Keep up-to-date with market trends and stay ahead of the curve. Knowing when stocks rise and fall is essential in determining where to invest your money. Avoid buying last year’s best-performing stocks and funds as they’re likely to be marked up in price—and not guaranteed to maintain profits. Instead, wait patiently and find the right moment to buy into less popular investments that might have had historic downs but turn to profit handsomely.

Control Your Costs

Mutual fund costs can be a significant component of overall expenses. Low-cost index funds and exchange-traded funds will track market indexes and keep your costs down. Every dollar you spend on management fees, trading costs, and taxes diminishes your potential return. You also need to factor in the cost of an adviser. The more you pay for advice, the less you earn in your portfolio. Don’t be too eager when investing your money, and avoid taking out any capital loans.

Know Your Taxes

Taxes can be the highest expense in a portfolio and need to be properly managed. Tax management falls into three categories: asset location, tax-loss harvesting, and withdrawal strategy in retirement. Profits from stocks held for less than a year are taxed at your ordinary income tax rate. Ordinary dividends earned on your stock holdings are taxed at regular income tax rates, not at capital gains rates. However, “qualified dividends” are taxed at a very advantageous capital gains rate of 0% to a maximum of 15%. Stay informed on the relationship between your stock and taxes using professional management services. Tax professionals offer streamlined tax resolution and management services, taking the stress off your shoulders—while still investigating the best possible financial strategies available for your individual situation. Why are companies like this so adept at financial management, especially in terms of tax resolution? Modern technology. The modern CPA firm can take advantage of the latest in tax innovation, and these technologies benefit you in the long run. Cloud-based software like Intuit Tax Online is only available to tax professionals, and offers benefits you won’t find in run-of-the-mill, DIY online tax software. With remote access to your financials, your tax advisor can examine the way your stock decisions may impact tax debt or future tax bills—that kind of peace of mind is invaluable when working with an investment portfolio.  

By maintaining discipline and following these key strategies, you’ll see significant improvement in your investment portfolio and ensure your financial success.

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