Monday, 21 September 2015

Resilient Portfolio: Investing Strategies for the Disciplined Investor

How you invest your hard-earned money, obviously, is an important decision; and how you go about making your investment choices is even more important. Asset allocation, diversification and dollar cost averaging are proven, time honored and successful ways to help you to achieve your investment goals.
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Asset allocation
Asset allocation is about not putting all your eggs in one basket. It's the ultimate protection should things go wrong in one investment class or sector, as is likely to be the case from time to time. Asset allocation attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to your risk tolerance, goals and investment time frame.By keeping things carefully balanced, you'll be able to endure market fluctuations without losing sleep.

Diversification is a risk management technique that combines a wide range of investments to potentially minimize investment risk.  Finance blogger Ken Faulkenberry defines investment diversification as "a portfolio strategy combining a variety of assets to reduce the overall risk of an investment portfolio.“ A basic, diversified portfolio might include several investment categories such as stocks, bond and cash.

Dollar cost averaging
Often considered the best friend of the ordinary investor, dollar cost averaging is a strategy whereby you allot fixed investment amounts at predetermined times (monthly, quarterly, semi-annual, or annual), regardless of the movement in stock or bond prices. As a result of buying a fixed dollar amount of a particular investment on a regular schedule regardless of the share price, more shares are purchased when prices are low, and fewer shares are bought when prices are high.
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Lewis Daidone  is an investment operations consultant currently working at BlackRock. His wide ranging experience includes mergers and acquisitions, successful start-up and exit strategies and  business process re-engineering. . Know more about him on LinkedIn.