It has to be said that it has been a challenging year for many people financially, and if investing is new to you, you might wonder what on earth you have got involved with. It might seem impossible right now, but despite the global pandemic, there are still industries that are thriving as well as those that are not doing so well. Growing a portfolio at the moment probably seems confusing, but thankfully, all is not lost, and we have some great tips to get you started.Â
The Current Situation
In early February, the FTSE 100 was down 15% over 12 months, and there is no denying the damage from the various lockdowns. However, experts are confident that we are moving back to normality slowly. It is not just the pandemic that affects things, and we are also entering a new phase for president in America as Joe Biden takes office. All of these factors contribute in different ways and offer positivity so people should not lose heart. So how do we get the growth we are looking for?
Buy and Hold
This is a well-established strategy and remains as essential as ever. It also makes things quite simple as you have little work to do; simply buying stocks or investments and sitting on them can give incredible growth. Of course, the trick is knowing where to invest, and for that, the advice is to consult the professionals and get an advisor on your side. They are worth their weight in gold when you find a good one.
Diversifying
The old adage of not having all of your eggs in one basket has never been more accurate. While one sector might be facing hard times and not giving you what you want, there will be plenty of others that are thriving, so by spreading your investments, you stand more chance of being successful. You could also consider a good spread of bonds, stocks and cash to ensure that the portfolio sees the growth you are looking for. Some people are tempted to stick with a portfolio that is made up entirely of stocks, but this can be riskier and offerÂ
Time the Market
In the simplest form investing is about buying low and selling high. But in order to do that, you need to be watching and learning at all times. Knowing what the market is doing is a skill that can only be developed with experience, so again you have two choices here. You either become a market watcher, or you pay an expert to do it for you. This can be a more productive strategy than buy and hold, but only if it is done right, so timing really is everything here.
Find Growth Sectors
Some sectors of the economy are safer bets than others when it comes to growth; we can be reasonably confident that they will see growth. For example, technology, AI, construction and healthcare all make a lot of sense right now as we know that they are going to be prominent areas as we start to recover from the global pandemic. But this is not without risk, as although we know that these areas offer higher than average returns, they are also volatile areas that carry greater risk, so you are looking to play a clever game of balancing here. The way to counter some of the risks here is to use ‘buy and hold’ tactics and also to ensure that you are selecting your investments carefully, which again may mean getting advice from an expert.
Equities or Bonds?
Some people stick with bonds because they do have a lower risk, but although equities are higher, they are a good place to offer a return. So, the best strategy is to try and balance your portfolio so that you have both equities and bonds in combination.
Company Sizes
Many people are tempted to invest in large corporate companies, but actually statistically, some of the smaller companies regularly outperform their larger competition. When it comes to the size of the company, the smaller offerings do have a higher risk because, generally, these are businesses that are newer and not as well established as larger companies. Banks see them as riskier candidates for loans; they don’t have as many employees, and therefore a reduced inventory. But small to medium size companies versus larger size businesses still see the more significant returns. Statistically, over the period of 1926 to 2017, small companies showed a 2% a year growth extra over the more giant conglomerates.
Rebalancing
Finally, it would help if you remembered that you have to rebalance your portfolio from time to time. Things will come out of alignment, and over time you could see stock to bond mix of 50/50 become a 60/40, so you need to rebalance your portfolio. This can be done by selling off, and I think that has become overweight, so in the example given, selling off 10% of your stocks and, conversely, purchasing in the underweight areas. So, bringing your bonds back up to 50% by purchasing 10% more. Alternatively, another strategy for rebalancing is to withdraw from the overweight assets.
Be sure that you never underestimate the advice of a professional as many people avoid this as it costs them money. But it is actually well worth the spend, and you will make more money in the long run if you take advice from someone who really understands the markets.
