Principles of Investment Management

Whether you are a seasoned portfolio manager or a novice investor, it is important to plan carefully and utilize the principles of investment management. This simply means that you have to make wise financial decisions in order for your investments to be successful and following investment management principles is a great way to get there. Finding a way to budget money to put toward investments requires a conscious effort. Once you are budgeting regularly, having a clear investment management plan in place is usually a smart strategic decision. Everyone wants their investment portfolio to be successful and there are a wide range of investment management decisions to be made that can help you invest successfully.

Principles of Investment Management

  1. Embrace a proper investment strategy- The first step to establishing your investment strategy is to clearly understand the type of investor that you are. The next step is to create an investment management plan and then follow through. Among other options, you may decide to focus on or incorporate value addition, contrarian investing, growth, or momentum of the investment as a whole. Many financial experts focus on valuation-based investment decisions.
  2. Invest with a “margin of safety” and assess your risk adversityOnce you have identified your basic needs and goals, your investment management strategy should address the risk level you are prepared to accept. One way to address risk is to use the principle of “margin of safety.” If you buy an asset for less than its potential or intrinsic value, you are giving yourself a certain margin of safety although investing always involves risk if you buy an asset. You will also want to assess what percentage of your investment dollars go into high risk/high return stocks and what percentage goes into lower risk investments such as bonds. Typically you start out with a higher percentage in higher risk/return investments and move more to bonds as you get closer to retirement
  3. Asset allocation is a top priority- Asset allocation or how your portfolio is broken down will be a major factor in your return on investment. Asset allocation is an investment strategy that looks to create a balance between risk and reward by placing a certain percentage of your investment in each of three main classes: equities, fixed-income, and cash or cash alternatives. Each of these have different levels of risk and return so they can play to an individual’s goals, risk tolerance, and investment time frame.
  4. Diversification is of essence- Investment diversification can reduce risk and increase returns in your investment portfolio by cushioning your portfolio from a loss in one area. In other words, five investments might be much better than two. Investments are spread over different industries and financial products that would potentially react differently to the same market or world event.
  5. Invest for the long-term- Long-term investing is one of the most important investment principles. The idea is that over a long period of time you will have some highs and some lows in your returns but overall they will balance out. The sooner you start investing the better your potential returns.

Contact the qualified financial planners at Multigen Wealth Management; we are here to help you pursue your dreams of growing your investments. *Asset allocation and diversification do not ensure a profit of protect against a loss. Stock investing involves risk including loss of principal. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.