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Three Important Portfolio Decisions You Can Actually Control

Anthony Pressimone

Director of Financial Education

Last Updated
December 13, 2020

Tips for Building a Solid Investment Plan

Building an investment portfolio can be an overwhelming task. There are so many investment options and ways to put your money to work in the market that it’s hard to know where to begin. However, a few simple rules can take the emotion and guesswork out of your investment decisions. The following tips can help you build and manage an efficient portfolio that is aligned with your specific goals.

Tip #1 – Build a foundation

Just like a house, your investment portfolio needs a solid foundation and continuous maintenance. Instead of allowing your investments to be whipsawed by the market news of the day, establish solid rules to govern your decisions, and stick to them.

First, determine what your investments need to accomplish. Then, create a plan to guide your buying and selling decisions. It’s impossible to predict the market’s short-term direction, but we can count on the fact that it will fluctuate greatly. Use that market volatility as an opportunity to do maintenance work. For example, take some profit on an investment when it goes above a predetermined target and use that profit to purchase a different investment when it is trading below target. But, only make these changes if they are in line with your pre-determined investment plan.

Tip #2 – Choose your materials

Once you have built a solid foundation by establishing rules for your investment plan, it’s time to select your building materials. Like any good carpenter, you want to choose quality materials at a reasonable cost.

There are countless investment options that will allow you to create a low-cost, high-quality portfolio. Evaluate your options to make sure you are not overpaying for what you need, but also ensure you are not letting fee considerations push you to inferior products. As a general tip, if you can’t understand it, don’t buy it. With investments, boring is almost always better.

Tip #3 – Delegate responsibilities

It’s wise to diversify your portfolio as much as possible in order to achieve returns while also having downside protection across market cycles. You wouldn’t hire three different electricians to do the same wiring job, why would you choose three investments that all do the same thing? For example, holding a large-cap growth fund, a mega-cap growth fund and a large-cap index fund offers very little in the way of diversification. Understand each investment’s holdings and make sure they do not overlap too much with other investments in your portfolio.

Investing doesn’t have to be complicated or stressful. Creating an investment plan based on these principles will help take the worry and second guessing out of your decisions.

At Creative Planning, we work with clients to develop diversified investment portfolios that help them achieve their long-term goals. We believe investments play a vital role in the financial planning process, yet they are only one piece of a much larger puzzle. If you would like to speak with one of our qualified advisors about how we can help guide you toward achieving your long-term goals, please contact us.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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