Committing money and time to your investments is a small part of your overall investment journey. You also need to ensure you manage your investments correctly.
The worth of any investment – both present and future – will change over time. So too will its alignment to your investment goals, risk tolerance, and moral compass.
As an investor, you must manage your investments to ensure they continue to meet your goals.
Welcome back to the Investing Series, the series where I share my thoughts on how investing plays a critical role in building a life that you love.
Today’s focus is on portfolio management. I will discuss how you need to manage not only your financial investment portfolio, but also the myriad hobbies and interests you involve yourself in.
What is Portfolio Management?
Portfolio management can be boiled down to managing your investments – taking a good look at your investments and what you’re doing to figure out if it’s working the way you want it to.
As you will know from reaching this point of the Investing Series, everything you do is an investment in something. It’s not just the money you spend, but the time you commit to things that you invest.
As part of portfolio management, you must not only manage your investments, but also your work, diet, exercise, health, time, and mood.
I will focus on financial investment management first.
How to Manage Your Investment Portfolio
The Investing Series has discussed the importance of investing, as well as how to understand the role that risk plays in your portfolio.
There are a few concepts that I believe are essential when managing your investments:
Risk
The concept of risk is essential to understand as part of managing your investments.
As you age, your ability to recover from financial losses decreases. For those who retire and forego their salary, financial losses can be catastrophic. This must be avoided at all costs.
The power of compounding returns allows you to build a large sum over money over time. But you don’t have that time later in life – and you often need the money now.
You must ensure that your investment strategy aligns with your changing risk tolerance, as well as meeting your needs as you age.
Investments that are deemed to be high-risk may become less tolerable to you over time. This influences your new investment decisions by making you avoid investing in risky asset classes.
However, you must also consider whether or not you want to maintain exposure through your investment portfolio.
Early in life, your focus is on accumulation. You have to accumulate the money – crystallised human effort – as soon as possible, to ensure you have enough to survive later in life.
Later in life, you may find that your priorities change. Your time to accumulate in a traditional job is over.
An optimal strategy to minimise this downside risk could be to build a larger position in assets that offer a lower chance of failure or loss. Cash and fixed-interest investments like bonds give you protection to know that your dollar value is safe. Building a series of investments that preserve wealth rather than growing it is a common strategy later in life.
Assess your investments to ensure that their risk/reward ratio matches your time horizon and outlook.
Performance
As part of managing your investments, you may wish to review the performance of them. This often involves researching your investment online, and accessing charts and historical price data for your investment. This data is extremely common for shares, cryptocurrencies, and anything else sold in online markets (even trading cards…)
By reviewing the performance of your investments, you’ll know whether or not they are meeting the standards you are looking for in investments. Understanding that an investment is underperforming allows you to either hold out for it to get better, or to cut your losses and close your position.
Without reviewing your portfolio, you won’t know whether your investments are good or bad.
Strategy
Ideally, your investment portfolio has a strategy that you’re sticking to. Whether it’s building a real estate empire or dabbling in crypto, chances are you’ve thought about how you’re allocating your money.
Managing your investment portfolio means taking a look at your whole portfolio, assessing where your money is held, and figuring out what the ideal balance is across your investments.
Say you have an investment portfolio comprised of 90% stocks, bonds, ETFs, and other “traditional” investments. The remaining 10% is invested in whatever takes your fancy, from collectables to crypto and NFTs.
Let’s also say that your crypto does very well, leading to your “non-traditional” portfolio percentage reaching 20%.1
When reviewing your portfolio, you may feel as though you are overexposed on these assets, based on your investing strategy. From there, you can either decide to sell some crypto and invest in other ones so that you return to the 90-10 balance.
Alternatively, these high returns may have changed your stance on alternative investments, which results in you maintaining the 80-20 split.
Whatever your investment strategy is, it requires time and planning to ensure you’re maintaining the ratios you want to maintain.
Sentiment
Your opinions of your investments may change over time.
Perhaps a company you invested money into has engaged in behaviour that you don’t like. Or an ETF or LIC you invest in has changed its investment strategy. You may even be engaged in trading investments and want to move to a more passive approach.
Investments and investing styles that were once useful to you may stop being useful in the future.
Part of managing your investments is understanding how this can happen and what you plan to do when it does.
Do you plan to sell these investments? Or will you simply avoid contributing further?
It’s ok to change your mind on your investments. After all, they are your investments. Ensure you understand how you truly feel about your investments, and act accordingly when managing them.
Your Life As An Investment
It is worthwhile to approach the things you do in life in the same manner that you manage your investments.
Determine what works for you and what doesn’t. Make changes to the amount of time you commit to things in order to construct the life you want to live.
I did this recently by committing to a career break, where I reviewed my lifestyle and determined how I wanted to work in the future. I also committed myself to running a 10km race and to training myself for that event.
Review what you want to spend your time and money on. If something doesn’t bring you joy or fulfilment, why are you focusing on it?
Construct a lifestyle that allows you to focus on the things that you want to focus on.
That is the purpose of investing.
Closing
Managing your investments must be done in order to ensure that your portfolio is moving in a direction that aligns with your goals.
Rebalance and address your risk tolerance routinely to ensure you are not overexposed to risk or loss you do not want to tolerate.
The one who cares about you achieving the best returns on your investment is you. Don’t outsource this process because it’s “too hard”. Achieving mastery over your money and time is your duty.
Proactively ensuring your money and time are being used and invested effectively is a non-negotiable and timeless skill that will serve you for the rest of your life.
Your ideal life, built through focused effort.
Thank you for reading.
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- I use “non-traditional” here to mean investments that people will raise an eyebrow at if you mention them. Classify investments however you like to find a portfolio that works for you. ↩︎