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Saturday, January 1, 2011

Strategies to Build Investment Portfolio in 2011

Dear Saral Gyan Reader,

We Wish You A Very Happy and Prosperous New Year!

This is our first article for the New Year 2011. We thought the best way to wish a happy new year to our readers will be by giving them valuable investing strategies for new year 2011. The investing strategies for 2011 will be related to building of investment portfolio. We would like our readers to know the importance of building a good portfolio for best investment management. There is a big corelation between the effectiveness of your portfolio and your investment goal. If you have decided that you want at least 12% return p.a. on your investment over a period of 5 years then by seeing the composition of your portfolio an expert can estimate that whether you are going to achieve your goal or not. So we will request our readers to start giving equal importance to your total portfolio same a what you give to every individual shares you buy. There is more to building a solid investment portfolio than just picking good shares and bonds.

The investment strategies for 2011 should start with consideration that you are going to manage your porfolio same as your wardrobe. It may be possible that you have top class fashion clothings in your closet but this is not enough. All individual clothes should compliment other clothes to give a good get-up. Investment porfolio is also the same.

In this article we will discuss several tips of designing a good investment portfolio that matches your goals. We will give your five essential strategies required to be considered for building a great investment portfolio.

BUILDING A TAILOR MADE INVESTMENT PORTFOLIO

Investment portfolio is like a designer wear, they are tailor made as per your body-shape and personality. Similarly your investment portfolio should fit your goal and risk-taking capability.

Investing Strategy No (1): Building a porfolio as per your goal

It may be possible that you are inevsting with a goal for your child’s future, or for your retirement, or for your dream house etc. Before starting to build your investment portfolio, setting up goals gives very important information required to plan a good investment strategy. Your goals will basically answer three important question:

i) How much money you need?
ii) When you will need this money?
iii) What level of returns (8%, 10% or 12% ..) is required to meet your goals?

The less time you have in your hand the more difficult it is to get high returns. Lesser investing time (< 3 years) means more focus on protecting the capital than generating higher returns.

Investing Strategy No (2): How to diversify your investment?

Till you become an expert investor it is very important for people to save your invested money from the wrath of investment risks. This can be easily done by diversifying your investment portfolio. We think that the investing strategies related to portfolio diversification must be known to all investors. Let us understand an easy to implement rule of thumb related to investment diversification (related to retirement planning).

TAKE YOUR AGE AS YOUR GUIDE

For example if your age is say 35 years, it means 35% of your porfolio should consist of debt linked assets (bonds, deposits, debt linked mutual funds etc) and balance 65% into stocks and equity linked mutual funds. And when we are talking about shares, again diversify based on your age, 35% in large cap stocks, balance 65% on mid caps and small cap stocks.

TRY TO ANSWER SOME KEY QUESTION ABOUT YOUR PRESENT HOLDINGS

It may be possible that you remember all stocks you presently hold in your portfolio but it is important that you should answer some key questions about your holdings.

Investing Strategy No (3): Realize how your individual shares perform as a portfolio?

When market is upbeat you will not realize the importance of effect of individual shares on your total porfolio. But when the market starts to dip you will start realising the necessity of knowing the characteristics of individual shares. Try to categorize your portfolio on basis of the below questions, it will give your great insights about your investments:

i) What is the average return of your total portfolio?
ii) What constitues your core investment holdings? (like which shares, deposits..)
iii) Is your porfolio well diversified? (like are you holding shares of only few sectors..)

OBSERVE AND MONITOR YOUR INVESTMENTS

After you have answered questions about your goal, need of investment diversification and your present share holding pattern, it becomes essential to answer another important question. A real good answer of this question is important in building a good investment strategy for 2011

Investing Strategy No (4): Does your current portfolio compliment your investment goals?

You may be having some excellent shares in your portfolio but are they good enough to support your goals during bad financial weather? The objective is that even in bad times your investment portfolio should be strong enough to meet your investment goals. Try to categorize your investment holdings on basis of questions asked below:

i) Are your holding subjected to tax when you decide to redeem?
(like debt linked investments)

ii) Are you owning too many large cap stocks which are growing too slowly?
(often large cap stocks become complacent and their growth prospects become feeble)

iii) Do you know about your core sector that is going to contibute maximum to your goal?
(try to keep yourself updated with the news related to this sector, this way you can afford to put money in this sector as compared to other)

To conclude, Investment strategies for 2011 should be more focused on building a good investment portfolio. Your portfolio should be well diversified and try to fill your portfolio with value stocks.

Happy Investing in 2011 and beyond!


Warm Regards,
 
Saral Gyan Team