Managing an Individual Investment Account
- 1). Allocate funds. Assuming the funds in a brokerage account are not necessary for short-term expenditures or bills, begin a plan to allocate these investment funds according to specific investment goals. A long-term horizon (10, 20 years or more) should favor stocks, whereas shorter time frames could cluster more heavily in fixed income investments. But deciding how much money will go into each asset class is a great place to start.
- 2). Do the homework. Before spending a single dollar, research the macroeconomic environment to assess how major trends will likely effect your investments. A global banking panic might drive up the value of existing bond holdings, but may have already priced in the worst. Or maybe stocks are at historically low levels and represent a rare buying opportunity. While sticking to allocations as much as possible, don't fight the global market trends--use them!
- 3). Buy slowly. Never invest all the money allocated to an asset all at once. Professionals don't do it and neither should individual investors. Most markets are larger than any one participant and can go against an investor even if their general thesis proves to be correct. Buying patiently allows lower prices to be an additional opportunity rather than a cause of stress.
- 4). Hedge. No one wants to lose money, and a winning investment strategy is to protect capital first and worry about profits second. Stock positions can be hedged through the sale of covered calls, the purchase of puts or through some other related short position. Fixed income doesn't require a hedge, strictly speaking, but should be diversified enough to limit default risk and interest rate risk.
- 5). Take profits. No one ever went broke taking profits. Understanding that even most professionals are content to admit they never catch the exact bottom or exact top takes off any pressure to do so. Selling, even if the price continues to go higher, limits risk, realizes profits and preserves capital.
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