Portfolio management involves more than just milking the cash cow, diversifying, and investing in stocks wishing for it to reach the moon. This model might work well at a time when investors trusted management to deliver long-term results. There might be some investors who feel content with just generating income without growing their basket, but most of them certainly don’t. Most investors would love to see their portfolios grow over time.
There are many ways to make a portfolio grow in valuation. Some need to undergo a higher risk route and some might consume longer periods.
..So, how do you measure growth in investment portfolios?
In general, any increase in portfolio value can be considered growth. It can be capital appreciation – the price/valuation of the investment increase over time or a deposit that pays a dividend on the principal. Growth can take place in the short or long term. Depending on your investment purpose. Returns vary according to risk as higher returns usually come from higher risk.
‘For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.’
Buy and Hold
The simplest strategy any investor can implement. It is mainly for investors who simply buy a certain stock and keep it in their portfolio, with minor monitoring, typically not concerned with short-term price. Most of it is either waiting for capital appreciation after a long term of time or enjoying dividends pay-out. This strategy is great for investors with low-risk tolerance as they are simply not bothered with price movement.
It is a great strategy that allows investors to set ratios for their asset allocation. For example, risk can be altered by a mixture portfolio using derivative securities such as futures and options or stable commodities such as gold. Derivative securities allow investors to reduce risk to the overall portfolio. Those who seek the faster route can add more portion of high-risk investment medium/ asset such as stocks or currencies.
For investors who are not aware of how to construct their investment basket can always opt for a hedge fund, mutual fund, unit trust, or ETF which often provide an efficient diversified exposure to a wide variety of asset classes and strategies that had been thoroughly crafted by an investment analyst or AI.
As Warren Buffet notes, “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
Timing… for both Investment & Market
Investors who pay close attention to specific market instruments usually can beat the return of those who implement buy and hold as well as diversify. This is one of the most basic yet the hardest strategy as it requires investors to time the markets correctly and consistently buy when prices are low and sell when they are high. This strategy definitely works better as it let the investor yield better by purchasing at a discount and selling at a premium, as long as they were able to correctly determine the market movement.
However, market timing is not for everyone! It is designated for investors that can allocate time to watch the market on a daily basis. For those who don’t have much time on their plate to observe the market, t is better to avoid market timing and focus on other investing strategies more geared for the long-term instead.
Dollar Cost Averaging – DCA
Read More on Dollar Cost Averaging Strategy
Dollar-cost averaging thus allows the investor to reap a greater gain from the fund over time. So, DCA works when an investor allocates a specific amount that is used to periodically purchase shares of one or more specific stocks. DCA works to combat emotional purchasing tendencies as investors don’t need to worry about purchasing shares during the market rises or need to carefully time. As it has been done periodically, the price of the stocks will vary from one purchase period to the next. Thus, the investor is able to lower the overall cost basis of the shares. When the stock price is high, fewer shares will be purchased and when the stock price dropped, more shares will be bought.
‘Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.’
Hot stocks often provide aggressive growth. The sectors that fall in this category are technology, healthcare, and small-cap stocks which are constantly evolving throughout time. So, why investing in growth stocks is a great strategy? It is because they usually come with above-average returns in exchange for greater risk and volatility. Higher returns come with higher risk.
It is very crucial in keeping self up-to-date when applying this strategy. Most companies
that fall in this category respond greatly to current news. This means their share price fluctuates accordingly. Not only news on the particular company but towards the country they located in as well.
For example, when Elon Musk decided to purchase Twitter, it not only affected Twitter’s share price but Tesla’s as well.
Dogs of the Dow
Based on the strategy by Michael O’Higgins in his book “Beating the Dow”.
The “dogs” of the Dow simply consist of 10 companies in the index that have the lowest dividend yields. Investors who purchase these stocks at the beginning of the year and then adjust their portfolios annually have usually beaten the return of the index over time.
There are many methods of investing. Always invest with knowledge and according to your risk tolerance. For risk adverse, opting for the right combination of stocks, bonds, and cash can allow a portfolio to grow with much less risk and volatility while for risk taker can choose to invest in riskier assets. Construct your investment portfolio carefully can avoid total loss, which when one asset class is performing poorly, another is usually doing well.
‘Risk comes from not knowing what you’re doing.’
None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance.