What's Really Driving Your Portfolio Performance

What's Really Driving Your Portfolio Performance



What's Really Driving your​ Portfolio Performance?
Many investors tend to​ focus on​ selecting the right stock to​ buy and​ choosing the perfect time to​ buy and​ sell .​
But some experts say these factors are a​ sure-fire way to​ damage portfolio performance.
According to​ Roger Ibbotson, chairman and​ founder of​ Ibbotson​ Associates and​ a​ professor in​ the practice of​ finance at​ the Yale School of​ Management, what really drives performance over the long term is​ asset allocation​ - the assignment of​ money to​ different categories of​ assets, such as​ large- and​ small-cap funds, international funds, bonds and​ cash.
Over the long run, what drives performance is​ not whether you've picked the hot mutual fund, but which asset classes you​ hold in​ your​ portfolio and​ in​ what proportion, said Ibbotson.
To develop a​ long-term investment strategy, investors should evaluate their goals, time horizon​ and​ risk tolerance to​ determine an​ appropriate asset allocation​ and​ then select mutual funds to​ fill it .​
An individual's investment goals, such as​ funding retirement, college or​ a​ vacation​ home, tend to​ guide the time horizon​ of​ the investment .​
if​ the investment horizon​ is​ fairly short, it​ is​ recommended that the investor maintain​ a​ conservative portfolio - one that has returns that don't fluctuate too much .​
if​ the investment time horizon​ is​ longer, an​ investor can be more aggressive in​ the early stages and​ move to​ a​ more conservative asset allocation​ as​ the goal nears.
Since everyone has a​ different emotional reaction​ to​ sudden changes in​ their portfolio value, it's important for​ investors to​ know their risk tolerance .​
this​ will determine an​ investor's ability to​ handle declines in​ the value of​ investments.
Investors have a​ tendency to​ let emotions drive their investment decisions, Ibbotson​ said .​
Chasing highflying funds that may have already peaked and​ selling on​ downturns can greatly depreciate the value of​ your​ portfolio.
Experts also suggest that investors evaluate their portfolio performance as​ a​ whole rather than look at​ how each individual investment is​ doing .​
Investors reduce their risk by investing in​ a​ variety of​ asset classes with the hope that when one is​ doing poorly, others will do well .​
- NU




You Might Also Like:




No comments:

Powered by Blogger.