Your portfolio's performance highly depends on your decision to sell or buy stocks at the right moment so that you don’t incur losses on your investments. To know what time is best for you to sell or buy, you have to check the investments in your portfolio regularly. A big reason that many portfolios fail to perform well is the lack of attention they get.
If the investments are regularly monitored, you will be able to determine which investment is doing well and which isn’t. To ensure that your portfolio performs better, you should sell those shares that you think can negatively affect it. You can also sell the shares which are doing too good and book a profit. Either way, continually checking your investments can prove to be a useful tool to help your portfolio to perform better.
Asset allocation is the percentage of money an investor puts in different asset classes such as shares, fixed deposits, derivatives, or bonds. For the portfolio to perform better, assets should be allocated efficiently. An investor should allocate his/her assets only after identifying their long-term financial goals, their risk appetite and the period they are willing to wait to see the returns.
Determining the percentage of the money you would want to invest in different asset classes to achieve your long-term financial goals is one the most important factors in making your portfolio perform better. If the asset allocation is done perfectly, there is no chance of your portfolio making huge losses.
Equities over bonds
It is true that the equity market is a risky and volatile platform to invest in, but it is equally capable of earning you huge profits. The equity market has outperformed the bond market consistently over the years, and a manageable mix of equities and bonds will go a long way in making your portfolio perform better.
Bonds and other safe investments like fixed deposit can be used as tools to earn a regular fixed income. But having equities in your portfolio can result in huge amount of profits in half the time as compared to bonds and fixed deposits. It will also positively affect the overall performance of your portfolio as you will able to achieve your financial goals effectively.
After a certain amount of time, your asset allocation will drift from its original percentage and should be put back to the original allocation you initially determined. It is possible that after a successful stock rally, your 60/40 stock to bond ratio becomes 70/30. You should consistently look to rebalance your portfolio to make it work better. Rebalancing can be done in three ways:
- Adding cash to the sections of your portfolio which are under-weight
- Withdrawing from the sections that are over-weight
- Selling a portion of the over-weight section and adding the money to the under-weight sections
Taxes can lower your profits significantly as they are the biggest subtraction from the profits you make in the market. You should keep the investments which are tax-efficient in your taxable account and the investments which are the least tax efficient in tax-deferred accounts.
You can also consult a financial advisor or a stockbroker to manage your taxes better. As long as your tax management is up to the mark, your portfolio will keep on performing better.