| Business Finance | Personal Finance | Finance Jobs |
| Online Finance | Finance Management | Development Finance |
|
Management Of A Personal Portfolio For The Conservative by Amy Renca http://www.flmanagement.com Americans are encouraged to save for their own retirement and most companies offer a 401k plan. However, the workplace is unpredictable and the chances of staying with the same company for decades are slim. This means that the chances of rolling over a 401k from a company-sponsored plan to a self-directed 401k are high. In a self-directed 401k plan the individual makes the decisions on how the money is invested. While people tend to invest money in a mutual fund that has just experienced a high rate of return, this strategy does not work well in the long run because money is being invested when the value of the shares is at a peak. There are sensible and balanced approaches to take to managing your portfolio that can lower risks and still give a good rate of return. One of the first tips for maintaining a balanced portfolio is to purchase a mix of stocks and bonds. Conservative individuals may be afraid of the perceived volatility of stocks. While the stock market is capable of great volatility, there are some excellently managed mutual funds that invest conservatively and should appeal to even the most risk aversive. With a balance of stocks and bonds, the portfolio maintains stable growth in those periods that experience a downturn in either the stock or bond market in any given year. Historically, bonds do well when stocks may be faring poorly in any given year, but there are years like 1987 and 1994 where both markets were down. It seems perplexing at first but a portfolio with about 15% of the money invested in stocks is less risky than an all bond portfolio. While bonds do give a fixed yield, in years that the bond market declines, investors can lose money. If the investor is losing money with bonds and that~s all that is in the portfolio, it~s easy to see that there is risk of loss. However, if there are some stocks in the portfolio and historically stocks and bonds don~t decline at the same time, the likelihood of the stocks rising in value is high. This offsets any loss in the bonds resulting in a lower overall risk for the investor. There is another risk of too conservative of a portfolio. By opting for lower risk, an investor typically receives a stable yet lower rate of return on average. The cost of living quietly creeps each year and it takes more dollars to maintain a standard of living. There is no real growth in the portfolio if the investments only keep pace with increases in the cost of living, also known as inflation. If you are a conservative investor frightened by the chaos of the 1990s~ stock market, seriously look into adding a dash of risk through stocks into your portfolio. This small alteration will balance your investments and, as described above, will reduce your overall risk. If you~re hesitant about investing on your own, chat with a financial advisor who has respect for your position as conservative investor. An ethical advisor will work in accordance with your wishes. |