Your Best Investment Is Your Portfolio
My Economics professor used to say that there is no free lunch.
But there is.
It’s you portfolio.
If you have any two or more of of the items listed below you have a portfolio:
- Savings in the bank.
- Money in fixed deposits.
- Bonds
- ETFs
- Stocks of companies
- Unit Trusts
If you have quite a few stocks in your holdings, I would say that you have a stock portfolio which helps you to diversify investment risks.
In a portfolio, the different items added in increases the returns while at the same, it decreases your risks up to a point. Hence, it is like a free lunch.
However, the items added have to be diverse, different industries, different countries, regions, asset classes etc.
In an article in the Wall Street Journal, “Retiring in 10 Years? Uh-Oh,” it talks about your optimal balance in your portfolio. The past 10 years have been bad for people who are about to retire, who watched their retirement funds get decimated in the fall in 2007.
It goes on to argue that no matter what situation you are in, staying vested in stocks even when market is down is important.
Thus in a portfolio, it is not asking if you should be in stocks or cash, but how much.
That you should have a little of all asset classes is a given.
But this portfolio changes with your life, depending on at what stage you are at in life and your needs, both current and in future.
While in the article, the experts there suggest ranges of percentages depending on whether you are retired, I would like to think the ranges that one should look at should be wider depending on what the market is like.
So I have a portfolio too, although I don’t go around weighing it at all. I have all of the items listed above except fixed deposits and bonds. Which I only intend to get like 10 years before I retire. Now the question for myself is what percentage of each classes do I have and ask myself if I need to rebalance it.
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