When it comes to financial asset management, consistency and common sense are the keys to success. Following time-honored advice about saving, spending, investing, and managing your money may feel constricting in a runaway market, but it is the best way to build a profitable portfolio over time. New investors and seasoned traders alike should brush up on the basics of sound financial asset management and base their plans on solid financial footing.
Commit to investing a certain percentage of your income each month, and ask your brokerage to auto-draft the funds from your bank account. Many brokerages will waive their minimum investment requirement if you set up automatic payments, and it sidesteps the human impulse to spend any extra money in your bank account. Also, buying stocks, bonds, or other investments over a long period of time helps to ensure that you get a fair price on your assets. Many financial advisors suggest investing ten percent of your income, but if you can only invest three percent, or even one percent, do it. Consistency is crucial to long-term success.
Diversify your portfolio. Putting all your money in technology, pharmaceuticals, oil, or retail is unwise financial asset management, no matter how well that sector is doing when you buy in. If that sector comes crashing down, it will take your portfolio with it. Spreading your money around offers you protection when bad news hits or market bubbles burst. Just make sure not to be invested in more stocks, bonds, or funds than you can manage intelligently.
Manage your money. Certainly, your broker is a professional, but he or she is still human, and you are the one who is ultimately responsible for your own financial well-being. Research companies before investing in them. What are their annual profits like? How much debt are they carrying? Are they widely recognized as a leader in their industry? Buy wisely, based on research and fact-checking instead of gut-feelings or fondness for the company’s products.
Don’t be afraid to cash out your profits every now and then, if it looks like your investment may take a turn for the worse. It’s better to pay capital gain taxes on your profits than absorb catastrophic losses. You can always buy the asset back when the market evens out, and you may be able to buy in at a lower price. Just try not to sell during a market panic, when prices plunge below reason.
Temper your risks by buying holding several shares of solid blue chip retail stock. Companies with over 500 million dollars in annual sales and plenty of commonly-needed products to sell to the public generally present a lower risk than smaller niche companies. Consumers may not purchase a new car or computer when times get tough, but they’re still going to buy toothpaste and toilet paper. Ask yourself where people buy these items, then research those companies, looking closely at their profits, assets, debts, and competitors. Pay the price to own the best of the best: solid, well-managed companies with a high return on equity and assets, commonly acknowledged to stand head-and-shoulders above their competition.
In the end, wise financial asset management comes down to common sense. Set aside a percentage of each paycheck to invest, do your homework on companies you are interested in owning stock in, and temper well-diversified growth stocks with large, stable blue-chip companies that you probably do business with on a regular basis. Only purchase shares in companies or commodities that you wouldn’t mind owning, because that is exactly what you are doing, buying your own little slice of that company’s pie. Choose carefully, because reckless consumption of half-baked companies could leave a bitter taste in your mouth and give you a bellyache you won't soon forget.
