3. Choose your investments. Once you’ve determined your objectives and risk tolerance, it’s time to select your stocks or bonds, mutual funds or exchange traded funds, or a blend of each. Just remember to keep it simple, though. We have seen even sophisticated institutions overcomplicate things, choosing many strategies which sometimes end up cancelling each other out.
4. Consider your portfolio weightings. Using your original asset allocation as a guide, you will need to periodically rebalance (buy or sell to return to the initial desired weights) to ensure you are still on track to meet your goals. Take it easy on the rebalancing though, as frequent trading may incur costs that eat into your return. If you have ETFs in your portfolio, the ease with which you can trade in and out means that you will be able to efficiently and cost effectively re-align your portfolio to help ensure it is positioned to do what you want it to do. Keep an eye on tax or capital gains opportunities and think a bit more about how different trades may impact your portfolio performance.
The key is diversification and monitoring your portfolio. The more aggressive (or risky) your portfolio is, the more closely you will need to monitor it.
Jane Leung, Managing Director, is Head of iShares Precision Exposures, where she and her team develop innovative ways to help investors reach their goals. You can read more from Jane here.