Even if you have a full tank of gas in your vehicle, you won’t arrive at your destination without navigating toward it. This holds for most things in life because you need a target to aim for and a plan to propel you. If you want to build wealth, putting money in a savings account isn’t enough; you need a plan of action to see your money grow.
Do you have a method for investing to set you up for life? A clear plan will help you achieve your financial goals. Let’s take a look at some great portfolio investment strategies.
Strategy #1: Diversify
We often hear this word in investing, and while it can be defined as not putting all your investment eggs in one basket, being diversified speaks to the tactics you implement. A good portfolio strategy should include the following:
- Active Investing: This is where you buy and sell securities based on the changing market and seek gains using a fund manager or managed personally.
- Passive Investing: With passive investing, you buy assets and hold them for long-term gain as they grow in value.
Both of these strategies work well for your short-term and long-term financial goals and build up various investment vehicles and a collection of assets in your portfolio.
There are several traditional investment vehicles to add to your portfolio, including:
- Stocks
- Bonds
- Funds
You can diversify between sectors and mid to large-cap stocks within these asset classes.
Other alternative investments, including precious metals, real estate, hedge funds, commodities and cryptocurrencies, can round out your portfolio. These come with higher risks but also higher rewards.
Strategy #2: Investing In Mortgages
We mentioned investing in real estate, a great way to build wealth. Beyond purchasing properties yourself, there is another strategic way to be involved in real estate: as a mortgage investor.
Investing in mortgages is a passive investment strategy that doesn’t require large upfront capital but can give you monthly income and high returns. This is also a lower-risk investment because you are lending money for a mortgage-backed up by the property the person is buying. If the borrower defaults on the mortgage, you take possession of the property and can sell it to get your money back. This repayment obligation secured by the property makes it an attractive investment strategy for people in medium- and long-term positions.
Strategy #3: Figure Out Your Goals And Timeline
A successful investment strategy involves writing down your financial goals and placing them along a time horizon. This allows you to have them laid out so you know how long to hold them to achieve your goals and get that money out for other opportunities. Short-term goals should be within a 12-month window so you can access the money from the investment in a year. Medium-term goals tie up your cash for 1 to 5 years, and long-term goals go beyond five years. This allows you to build cash for buying things like a car while saving for retirement or building generational wealth.
Strategy #4: Decide On Your Risk Tolerance
Investing isn’t gambling but putting your hard-earned money at risk. Sometimes there are short-term losses to achieve a long-term goal, depending on your investment timeline. The longer your time horizon is, the more riskier you can be because if there is a loss, you have time to recoup it.
Your risk tolerance plays into your investment timelines, with short-term goals needing more conservative and long-term goals allowing for more risk. You don’t want to be too conservative with a 25-year retirement investment, where you end up not achieving your savings goal. The key is to balance the risk based on your timeline, goals and comfort level within the swings in the market.
Strategy #5: Get Involved in Mortgage Investing
Three different ways to get involved in mortgage investing are:
Private Mortgage Funds
This can be done individually or as part of a pooled fund for a lender to get financing for their property purchase. They are not publicly traded and can be done personally or with the help of a mortgage broker or securities dealer. They are more riskier but come with a higher rate of return.
Public Mortgage Funds
These investments trade on a public exchange, and you can buy and sell whenever possible. You can put money in these mortgage funds through your investment broker or lending institution if they offer.
Mortgage Syndication
With mortgage syndication, you are funding a mortgage directly but not exclusively. You are part of a syndicate and may invest in several mortgages with a fractional interest. These are generally private mortgages, and you may need to meet a monetary threshold to get involved and be able to withstand potential investment fails.
These great investment strategies in your portfolio will increase your success and expand your net worth. Implement these into your financial plan and enjoy the returns they give you.
