Managing an investment portfolio means lots of things. There are many aspects that you need to take care of, e.g. understanding the source of returns, the market dynamics affecting your portfolio, as well as the risks involved with investing the money.
But time is your friend.
In general the longer your investment horizon, the higher your resilience and tolerance to withstand the ups and downs of your investment. So you will have days where your portfolio is valued more than the previous day and days when the opposite is true.
Now, the more severe these ups and downs, as well as the more frequent they are, the tougher it is to believe that your investment proposition is sound. It is a kind of test. This degree of variation of portfolio value is called volatility.
Volatility can however be good, i.e. positive volatility, or bad, i.e. negative volatility. You can measure it so that you have a quantifiable and comparable measure of riskiness of your portfolio. It is a very useful metric for portfolio management.
As said before, if you invest your money and need them back within a relatively short amount of time, e.g. 1 month, then you need to invest in things that are less risky, i.e. lower volatility assets. On the contrary, if you do not need the money you invest for at least one or more years, then you can enjoy the benefit of stepping up the risk of your portfolio and let it swing in value more than usual. The longer your investment horizon, the higher the risk you can take.
But there is a common thing. Trend.
And trend is another friend. A disruptive business idea or an emerging market will keep on growing and expanding, hopefully. For sure there will be ups and downs, but what matters is that over the long term you are in the positive, the investment goes up. This is key to effective portfolio management and portfolio success.
Obviously you do not have to blindly assume that any investment will make money BUT as long as you realise that over the long term the investment will be fine, just do not panic at those temporary portfolio value swings. Rather enjoy the reward at the end of the journey.
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