At some point in life, a lot of us consider the idea of managing our own investment portfolios. In some cases that might mean keeping an eye on some retirement funds and making the occasional, long-term decision. In others it might mean something more akin to day trading, making day-to-day choices in the hopes of turning investments into supplemental income. Or you might fall somewhere in the middle.
There is something empowering about handling your own investments, and in the right situation it can be rewarding—both personally and financially. But handling an investment portfolio is also complicated and demanding work, and it’s important to make sure that you’re prepared for the job. To help with that, here are some crucial questions to ask yourself if this is something that’s on your mind.
Do You Have Any Market Education?
This sounds like a very obvious question to ask yourself, but plenty of people dive into the stock market based on financial understanding they got from practical experience, or even from television. For instance, ABC’s hit venture capitalism reality show Shark Tank has gotten a lot of viewers to feel financially savvy. The show can actually teach some lessons about business, but doesn’t really carry any information particularly relevant to ordinary investing. Try to do an honest inventory of your own sources for investing knowledge and, if necessary, read a few books and strategic guides specifically aimed at independent traders.
Are You Devoted To Any Companies?
This is a more common problem than you might imagine. If you’re preparing to set up an investment portfolio and you know that you’re particularly devoted to a few companies, you might want to set those aside for the time being until you develop some sound strategies. For instance, if you adore Apple products you might be more forgiving if the stock should slide, or you might assume it’s a stronger investment than it is at a given time. If you love Nike, you might ignore a favorable pattern indicating that you should buy Adidas. The idea is to assess your own preferences to make sure they won’t dictate your financial decisions.
What Are Your Own Relevant Tendencies?
This is a broad question but it can be narrowed down as an attempt to understand your own trading personality. This might mean figuring out what kind of availability you’ll have to manage your portfolio to determine what sort of investment makes the most sense for you. It may also mean trying to assess how risky or risk-averse you naturally are and important decisions accordingly. You should take some time to recognize your own habits as they will relate to this new initiative, and adjust as necessary.
Does Each Investment Fit Into A Plan?
It’s important to recognize that investing is not about picking a bunch of great investments (though you probably wouldn’t mind doing so). It’s more about looking at a group of investments engineered to move you toward achieving your financial goals. A good portfolio has two key features: diverse assets (spread across various industries so that what happens to one won’t necessarily happen to another) and a unified goal (meaning short- or long-term gains). As you organize your investments, it’s important to ask yourself if each idea fits into a greater plan for the whole portfolio.
Can You Get Out?
Perhaps the most important question for anyone on the cusp of an investing decision is whether he or she will be able to withdraw funds when necessary. That might mean choosing the right time to gather profits on a successful stock, or when to cut losses on an asset in decline. The discipline to pull money out when needed is as important as anything else when it comes to the process.