One of the best results of the latest downturn in the market is that people have started re-evaluating the significance of investment risk management. Whether they are big brand companies, small scale businesses or private investors, they will never ignore risk management ever again.
For private investors, risk management means knowing how much risk they can afford to bear, what their investment goals are and how much time they have for saving a good amount of money. Depending upon these three questions, investors become able to calculate how much equity risk they are able to endure.
If there are high risks, then they can turn to 80% equities of their portfolio, which may include various degrees of risks like small cap value, options and foreign equity. A part of the remaining 20% should be cash but it should be pumped into income class for long-term investors. This refers to high yield investments, term deposits and bond funds.
Ultimately, the remaining 20% ends up in mutual funds as even aggressive portfolios with 80% equity leave only a small for bonds and at this investment level, any small amount cannot make an ample bond portfolio. You can be saved from this situation if you have enough knowledge about fixed income assets. This means that if you are an expert in bonds, you will need to invest your portfolio balance through funds. By doing this, you will be prove to be very smart on your equities side.
As far as investment management customization is concerned, you can hire a qualified expert to manage all or part of your finances. It is a well known fact that most of the mutual funds turn over half of their holdings at least once in a year. This means that while you can continue doing your job full time, your assets will be managed and your investment portfolio will be actively managed, traded and reviewed.
In fact, the investors who are too busy that they can’t manage their portfolio may consider a balanced fund or portfolio of funds, both of which are managed actively and also monitored regularly. No matter what the weakness or need of your portfolio is, you will definitely find a mutual fund which can fill in the gap and turn your mediocre portfolio into a well-diversified one. With this, you will not need to undergo those sinking feelings ever time you looked into your portfolio.