Investment management is a dynamic rather than a static process, one requiring adaptability and attention to changing trends. For example, between the years 2007 and 2009, many employer-backed 401(k) retirement plans shrank in value by 50 percent or more. During this same period, the stock market had a roller coaster ride. Investments considered safe and secure since the 1970s, such as real estate and mutual funds, lost much of their luster. This is not a new phenomenon, as similar shifts and swings have happened in the past and will undoubtedly occur again in the future.
The best tips for investment management can be summed up in the words caution, research, and diversity. While it has never been a good idea to place all of one’s eggs in a single basket, heeding that advice is more important than ever. This is not to say that the investor should bury his head in the sand or stuff his hard-earned cash into a mattress. Rather, he should take an approach to investment management that allocates resources across a wide financial spectrum.
The management of one’s assets involves the investor’s age, income, portfolio, and tolerance for risk. If investing in the hopes of having a substantial nest egg for retirement, the “100 Rule” is often cited. This guideline states that a person should subtract their age from 100 and make investments accordingly. For example, if one were 40 years old, a relatively safe bet would be to invest 60 percent of their assets in stocks. The remaining 40 percent should be equally distributed between cash, bonds, real estate, or other investments of their choosing.
In other words, a younger person, who has years remaining to recoup potential losses, is in a better position to take risks than an older person who seeks a stable retirement income. It is important for everyone, no matter what age, to establish personal financial goals. Investment management, in its most effective form, focuses on the long term. While people may dream of striking it rich overnight on an extremely risky investment, they are more likely to lose their shirt.
Some general concepts of investment management revolve around common sense. Not even the most knowledgeable analyst can consistently and accurately predict the whims of the stock market. That same theory holds true for the real estate and bond markets. This is where the importance of caution, research, and diversification come into play.
For the best results in investment management, identify companies, properties, and financial products that have demonstrated a history of profit and stability. Then, allocate your investments among them. With any luck at all, your assets should retain a constant value, and hopefully show a slow and steady profit.