Six Strategies To Protect And Strengthen Your Portfolio
March 23rd, 2009
With the markets on a rollercoaster ride at present, it’s a good time to take stock and ensure your portfolio is both strong and protected.
1. Fix a longer time horizon. If you are investing in growth assets (shares and property) make sure you think of it as a longer term investment. Short term investors are more likely to sell in a downturn. Don’t over-react to share price movements.
2. The worst case scenario. Most investors buy their portfolio based on what they believe will happen. To be truly prepared you need to plan for the worst-case scenario. Look at all the angles, especially if you are borrowing to invest.
3. Diversify. Spread your risk across asset classes as well as within them. Be aware which themes are driving which sectors and industries. Diversify into shares with good cash flow and reliable dividends.
4. Have an exit strategy. It is important to recognise your pain threshold – the point at which you are going to have to make major changes to your finances to stay in the game. Get out before this happens.
5. Dollar-cost averaging. A falling market is best for dollar-cost averaging. This is when you drip-feed into the market buying bit-by-bit rather than all in one go. The cheapest way is through regular savings into a managed fund. This will help you buy at lower and lower prices.
6. Remember the managers. Don’t ignore good quality cost-effective managed funds and index funds.
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