In order to maximize the earnings from investments, it is highly important that the investment portfolio is maintained wisely. You can maximize your earnings and minimize your risk by developing a good investment portfolio. There are a number of factors that must be considered while maintaining an investment portfolio. Following are the things you must consider:
Diversity in the Portfolio
Diversification in the investment portfolio is the best tool to minimize the risk associated with investment. You can diversify your investment portfolio by including a mix of equity shares, bonds, and government securities. It is important that the portfolio reflects investments in different sectors that are independent from each other. This is because companies in a single sector are influenced by the industrial factors at the same time. For example; if a new regulatory requirement requires an industry to increase environmental clean-up costs, this will affect the financial performance of all the companies operating in that industry.
Evaluate the Financial Health of the Companies
Doing proper research from making an investment is highly important. Placing a complete reliance on the analyst reports may not prove to be a good idea at times as there are certain trends that may be overlooked in the reports. You should conduct your own research on the companies. You can use ratio analysis to evaluate the trends in profitability and EPS of the companies.
Determine Realistic Goals
While developing the investment portfolio, it is important that you set goals that are foreseeable and based on concrete analysis. The earnings goals should be realistic and they should not have any ambiguity. You goals should have a sufficient provision against impairment of your investments. If you set goals that are unrealistic, you may end up investing in securities that have high risk therefore driving the overall risk in your investment portfolio to an unacceptably high level.
Consider the Timing
Market performance of most companies is highly volatile therefore timing of investing holds high importance. What might have been a good investment avenue a few months ago may not be worthy of addition in the investment portfolio. Therefore you must ensure that the analysis you conduct is recent and relevant. Any outdated information may impair your judgment regarding the company therefore ensure that none of the information you use for making investment decisions is outdated or irrelevant.
Delegate the Control of Your Portfolio
Managing a small investment portfolio may be an easy task but a well diversified investment portfolio may include a large number of securities and managing such a portfolio may require professional assistance. It may be a better decision to delegate some control of your portfolio to a financial adviser. This way, you will not have to keep track of the ongoing market trends regarding all the investments in your portfolio; and your agent will sell and buy securities on your behalf that are profitable.
Therefore, it can be concluded that there are numerous factors that must be considered to develop the perfect investment portfolio. Major factors include; diversity, pre-investment research, timing, and control of the portfolio.