6 Steps for a Better Investment PortfolioEvery investor wants to maximize their gains while minimizing their losses. Unfortunately, you can never be certain that you will be successful with all of your investments all of the time. These 6 tips will help you to make your investment portfolio more successful and minimize the effect of any losses.

  1. Compounding

Compounding refers to the earnings that you receive on reinvesting your investments. By allowing your investment to remain undistributed the account balance will grow through interest and compounding. The longer you allow the investment to sit, the larger the balance will grow. This is a great strategy for people who have a long time to invest since they can get great benefits, with little to no risk.

  1. Wait It Out

The market is always fluctuating, it is important to learn how to wait out the bad times. The longer that you stay with an investment the more likely you will be able to reduce your risk and increase your gains. Your time horizon will be important in this situation. If you have a short time horizon you will want to choose investments that present you with less risk since you will not have time to recoup any losses from the investment. But if you plan on keeping your investment for a longer time frame, you have the ability to take more risks.

  1. Asset Allocation

One of the most important keys to a successful investment portfolio is asset allocation. Asset allocation refers to spreading your money over several different categories of investments, or asset classes. Some of these classes include: stocks, bonds, cash or cash equivalents, real estate, precious metals, and insurance products. Each class will respond to the market at different times and in different ways. By spreading your money out you reduce the affect that market volatility will have on your portfolio. The goal is that if one class is doing poorly, another class will be doing better, so your gains offset your losses.

  1. Liquidity

Liquidity refers to how quickly you can convert you investment into cash without any loss to your principal. This is another facet that your time horizon will pay a major part in. If you have short term goals for you investment, you will want to choose an asset class that is more liquid. Whereas if you have a long time horizon you can choose an investment that is less liquid, since you will not need the money right away. For example, a fixed annuity would be a great investment for someone with a long time horizon since it would offer them stability and security with a guaranteed returned. But such an investment would not be a good choice for someone with a short time horizon since they would most likely incur large penalties for early withdrawal.

  1. Dollar Cost Averaging

If you practice dollar cost averaging you will accumulate shares of stock by purchasing a fixed dollar amount of certain securities at regularly scheduled intervals over an extended period of time. Using such a process should result in you paying a lower average cost per share.

  1. Buy and Hold-But Don’t Forget

The success of your portfolio depends on a periodic review of your holdings. You will occasionally need to rebalance your asset allocation. This is important because you do not want to find that you have accumulated a large amount in one type of asset, while your money in other asset accounts has waned. You always want to make sure that your allocations are equal.

Applying these tips will help you to see an improvement in your investments. However, by working with a Certified Financial Planner can help you increase your growth even more. If you are interested in learning what an investment advisor can do for you click here.