A 6 Step Guide to Managing your Investment Portfolio

Financial health is financial wealth. So if you want to invest successfully, there are a few important rules you need to follow

Maria Collinge
January 23, 2023
We’ve broken it down into six key steps that you can follow to manage your investment portfolio like a boss (Image: Female Invest)
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So you’ve taken the steps to making your first investment and your portfolio of stocks, funds and ETFs might well be building. Having around ten holdings of either stocks, shares or funds is ideal. But now what?! Managing your portfolio is a key part of being a successful long-term investor and it’s not as scary as it might sound.

We’ve broken it down into six key steps that you can follow to manage your investment portfolio in a champion way. 

  1. Know your goals
  2. Divvy up your assets and diversify
  3. Buy and hold
  4. Conquer the short term fear 
  5. Timing the portfolio checks
  6. Rebalance when become overweight

The importance of successful portfolio management

Managing your portfolio well is crucial to long-term success. Why? Well firstly, it’s going to protect you from two of the biggest threats as an investor: fear and greed. Fear strikes when you’re worried about watching your investments lose value. Greed takes hold when you’ve got too much of a good thing and over do it, resulting in an eventual loss. 

With a strong strategy in place for managing your portfolio, you can dodge some of these bullets. It’s all about following the simple steps and you’ll be well on the way to achieving that long term growth. Remember, the markets rise on average 7 to 10% a year, and there’s no reason why your investments can’t do the same. 

Generally speaking, financial goals can be separated into short, medium and long-term goals (Photo: Unsplash)

Know your goals

The first step to managing your portfolio successfully is knowing your goals. When we say your goals, we’re not talking about football or what your next examination grade will be - we’re talking about financial goals. 

Generally speaking, financial goals can be separated into short, medium and long-term goals. This can be anything from the next holiday you want to go on and are saving hard for all the way to the biggest goal most of us will probably have, which is retirement. Some might also have kids, or further education as a goal. All of these goals will have a period of time in mind, which usually dictates what kind of risk you can start to take. 

  • Short term: less than 5 years
  • Medium term: 5-20 years
  • Long term: 20+ years

If you’ve got a few goals that fall into different categories of these time scales, you can also manage different sections of your portfolio in different ways. It might be that you hold them in slightly different places, or move them around, but it could also simply be that you earmark them mentally. 

"Managing your portfolio well is crucial to long-term success"

Diversify and divvy up

Once you’ve got your goal for your portfolio clear, you can start to think about asset allocation.

Diversification is basically a fancy way of saying having a wide range of different investments in your portfolio. So we’re talking about a range of geographical regions, sectors and assets if possible. In an ideal portfolio there are around 10 investments. 

You might therefore have a bit of the US, a  bit of Europe and some Emerging Markets, to cover off some geographical diversity. Perhaps you’ve got a keen interest in pharmaceuticals and add them into your portfolio to have sector diversification, alongside the automobiles holding you’ve already got. Some cyclical and non cyclical stocks in the mix never goes a miss. (link to descriptions) Last but not least, whilst your portfolio might be mostly stocks or funds of stocks, you could well throw in a few bonds, commodities (like gold or precious metals) and property. 

This will mean that your portfolio will be well diversified, which in turn means that it should respond less dramatically to changes in specific sectors or assets. AKA when the pharmaceutical industry is rocked by a scandal and takes a nose dive in its value, you’ve got 9 others that aren’t embroiled in press releases to hold up the fort and the value of your portfolio. 

Now it’s the time to divvy up. Think back to the goals and figure out how long you’re planning to manage this section, or the portfolio as a whole. As a rule of thumb, the longer the time scale, the more risk you can afford to take. If it’s a very short term goal that’s less than 5 years, you’re unlikely to be able to invest into stocks and shares. Longer than this and you’ll need to think about the level of risk in your investments. 

With medium term, you’ll probably need to opt for a lower level of risk than a longer term portfolio. This might mean that the stocks chosen are from larger, more established companies that are renowned for consistently paying a dividend. It might also mean that there’s a greater percentage of more stable, less volatile assets like bonds (link to what is a bond).

Buy and hold

Over the long-term, markets go up on average by around 7 to 10%. However, if you miss just five of the bad days, the outlook of your portfolio will decrease significantly. And unfortunately, none of us know when the good and bad days will be, as none of us have the power to see the future. 

One of the most effective ways to manage your portfolio over any time horizon is by buying and holding. It avoids the need to time the market, adding in guesswork and human error, and makes sure that you’re able to see gains over whatever pre-decided time period you had set your portfolio up for. Many big name investors, like Warren Buffet, who have seen notoriously record breaking results when it comes to managing their portfolios, follow a buy and hold technique.

Conquer the short term fear

As investors our biggest threats are our fear and greed. The greed gets us when we want too much of a good thing and it turns out too good to be true. The fear gets us when the chips are down, the markets are taking a dip and dragging the value of our portfolio with it, and the instinct is simply to sell off, cut your losses and succumb to the fear that you’re about to lose everything. Resit! At all costs, resisting this fear is key to being a successful investor. 

One of the best ways to avoid falling victim to the fear is having a predetermined exit point. What we mean is, before you launched into your first investment, you should already have decided when you were going to sell it. When, and only when, you’ve reached a pre-established deadline, it’s time to check-in and make the sales. If this time hasn’t come round, or the investment hasn’t passed certain boundaries within your portfolio then hold tight and fight the fear. 

You don't need to incessantly check your portfolio to be a successful investor (Image: Female Invest)

Timing the portfolio checks 

Daily debrief

This is a 10 second thing, and really, you shouldn’t be looking at your portfolio per say. Check in on the news, familiarise yourself with the movements that your portfolio is making. It can replace a browse of your favourite social media. It’s not to cause alarm, nor to become obsessive. It’s about knowing what’s going on, being in the loop and not letting major events slip the net and bite you on the bum with a nasty surprise. 

Monthly drop-in

This is a bit more serious. It’s a good time to go for the dollar cost averaging technique here, whereby putting in regularly, mostly monthly, helps to ride out the ups and downs in the market. If you’re buying the market at stages when it’s more and less expensive you’re helping to balance out the average cost of buying into your portfolio. Check in monthly to drip feed your portfolio and click buy on any necessary investment purchases.

Quarterly check up

You should aim to properly sit down with your portfolio once every three months. Although this might not sound very frequent, you actually want to avoid checking your portfolio manically and thoroughly twice a day. Whilst obsessive over checking will probably start to take a toll on your job, social life and crucial Netflix habit, it will cause you to become more susceptible to the biggest investor threats: fear and greed. If you watch your stock’s value plummet, you’ll be scared and inclined to sell. If you ride out the waves, you’re much more likely to make long-term gains. Three month checkups are sufficient to be fully in the know in case of major changes, without being obsessive. 

Annual rebalance

Five years is an ideal time horizon to have in your mind before embarking upon stocks and shares investments. As a result, sitting down once a year for a fully comprehensive assessment is more than sufficient. Structure your meeting with yourself and your portfolio around the following 5 points:

  1. What am I looking to buy next?
  2. What, if anything, might need selling?
  3. How geographically diverse are my holdings?
  4. Do I hold enough sectors in my portfolio?
  5. Is anything looking particularly over, or under, weight?

This should ideally take a bit of time. Whilst you’ll have kept up the research and been informed throughout the year, this is when you can start applying some of the research to your portfolio. 

Rebalance when there’s over or under weights

Finally, as a last piece of wisdom and to avoid the fear,  rebalance only when there’s specific areas that have grown a little too much, or perhaps not enough. You want to avoid one area being especially overweight, as it will ruin all the good work that your diversity has been doing. Make sure that your portfolio looks relatively well balanced in terms of size and you’re good to go!

The bottom line

So there we have it - a 6 step guide to managing your investment portfolio. Remember, there’s no right or wrong way, just because it’s different to your friend, your partner, your parents, what’s right for you is what fits within your strategy. By applying the six step guide to managing your investment portfolio, you'll be sure to be on for a winning number (AKA long term growth)!