Updated 03 September 2020
Whether it’s a barbecue summer or not, here are some tips for fanning the flames of your portfolio – without getting your fingers burned.
Over to Sally, our al fresco investor:
Hi! Lovely to see you, come on in. Ooh, you made couscous salad! Just pop it on the table. Lovely day for a barbecue, isn’t it? Actually, that reminds me of my first tip.
There may not be many times in your life when you have spare income to invest, so start while the sun is shining and get your portfolio sizzling away. As for how you do that, well… tip number two!
A barbecue is about the only time you’ll see my husband cooking, but he’s obsessive about how he constructs them. Just pouring in the briquettes is a no-no – he builds a carefully balanced stack with plenty of breathing space. I’d say the same about designing an investment portfolio: balance it well, with lots of different kinds of assets providing stability. Also…
You can’t just put a match to briquettes, it’ll take all afternoon. Get a few firelighters in there – in a portfolio, that means a sprinkling of high-risk, high-growth assets, such as emerging market equities. But you don’t build a whole barbecue out of firelighters, because the food’ll taste horrid and it’ll burn your eyebrows off. You want just enough risk to build up some heat, which you can then transfer to slower-burning, safer assets by rebalancing the portfolio, as follows…
Keep an eye on your portfolio to make sure it cooks evenly. For instance, sometimes high-risk assets will grow a lot faster than others. That’s when you should skim off the excess value and transfer it into safer assets, so that the balance of risk remains steady. Stoke that fire.
Remember, the barbecue’s not ready to cook until all the coals are white. Be just as patient with your portfolio. If you started with ten-year goal in mind, stick to your plan. You might be tempted to cash in assets early if they’re looking hot – but waiting longer should bring much tastier rewards.
A well-made blaze can survive a few showers, so a few stock market dips shouldn’t cause you to run indoors and turn the grill on, so to speak. Even major financial crashes have always been followed by recoveries, so if you’ve planned with the necessary patience, you just have to wait for the sun to come out again.
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