Rebalancing your portfolio is one of those investment strategies that many investors know but may not understand a lot about it. While some investors rebalance their portfolios frequently, many others let it slide — either because they don’t know how or lack the time to do so. However, it’s one of those essential investment tactics that’s vital to any successful portfolio and should not be left undone.
Diversification is a common problem for the majority of investors. In most cases however, the primary dilemma is either inadequate diversification, or a complete lack of it. But there is an opposite extreme that’s not much less risky, and that’s being too diversified with your investments. How do you know if you’re too diversified?
Creating a proper asset allocation is the first, best step toward becoming a successful investor. After all, it’s impossible to time the markets, and no matter how hard you try, you’ll have difficulty beating the market with any specific investment selections you make. Creating the proper asset mix then is the most substantial contribution you can make to your investment performance.
There’s no “one-size-fits-all” when it comes to investing, and for this reason there are different asset allocation models that will enable you to reach your investment goals, within the scope of your risk tolerance and time horizon. Each model emphasizes a different aspect of investing — one will perform better in certain markets, and not as well in others.
We all know diversification is key to minimize risk. When it comes to asset allocation and diversification, it helps to actually know what the available asset options are, if you want to create a lucrative portfolio. It’s also vital to understand which type is the best for your needs and financial situation.
“Too often, people have a disconnect between the banking and bills sides of their finances and the investing and retirement sides,” says Bill Harris. “These aspects of finance are separate, and never the twain shall meet.” Harris is the Founder and CEO of Personal Capital, a program designed to help you look at all of your accounts in one place.
When it comes to personal finances, a small business, or a large company, cash flow is generally more important than net worth. If you doubt this, try applying for a loan at a bank. Unless it is an entirely asset-based loan, the bank will only be mildly interested in your net worth, but virtually obsessed with your cash flow.
Net worth is probably the single most important measure of personal wealth, which is why knowing your net worth is so important. This is particularly true if your plan is to increase your wealth in order to achieve financial independence and reach retirement. But what is it exactly and how do you calculate it?
Diversification is a buzzword that constantly pops up in regards to investing. In theory, the concept seems simple — you spread your investment capital over a sufficient number of securities, and in enough asset classes, that you avoid taking a complete bath when the market declines. But theory and reality are two very different concepts.
Are you ready for some sobering statistics from the legal front? You just might be surprised by how many legal disputes occur in a given year.