By: James Brown

A strong investment portfolio is essential for everything from saving for retirement to building wealth that can be used for other financial and lifestyle goals. Of course, there is never a guaranteed path toward building a booming investment portfolio. Every investment carries risks, ranging from failing to deliver desired returns to losing the money you invested.

However, some general guidelines may help increase your odds of building a portfolio that enables you to achieve your financial goals. I recently had the opportunity to speak with Ramsey Brock, president of Brock Asset Management, about the three critical steps that every investor must follow: invest, assess, and reinvest.

Step One: Invest

The first thing investors need to do is invest in their portfolio. 

“The earlier you start investing, the better,” Brock says.

“Starting to invest early allows your money more time to grow through compounding interest. You can work toward financial goals with a longer timeline even with smaller monthly contributions. For example, a recent college graduate in their 20s can invest less each month for retirement than someone who begins in their 40s or 50s.”

However, new investors aren’t going to build a strong, diversified portfolio just by randomly selecting stocks. Brock advises that investors make selections tailored to their goals, risk tolerance, and stage of life.

“You need to have clearly defined goals when you start building your portfolio, and these should account for your current life situation and plans,” he explains.

“You may wish to look at financial goals beyond retirement, such as saving for a down payment on a home or helping pay for a child’s education. Your goals and the timeline for reaching those goals will influence what you invest in, how much you need to invest, and the level of risk you can afford to take on.”

Regardless of specific investment choices, researching the potential risks and returns of different stocks, bonds, and mutual funds can help investors find assets aligned with their preferences.

Step Two: Assess

While Brock strongly advocates setting up automated investments to reduce the risk of making emotional decisions or trying to time the market, he also notes that investors must regularly assess their portfolio performance to keep goals on track.

“The relative performance and risk of different portfolio positions can change dramatically. Market changes, new competitors, and other factors could cause a stock once a solid performer begins experiencing significant declines. If you take a hands-off approach, you might not identify underperforming assets until they have caused significant losses.”

Changes to your situation could also require you to reassess your portfolio. Life changes such as having a child or experiencing a major medical event could lower your risk tolerance or require that you account for other future needs when making investment decisions. Regularly assessing your portfolio will help you identify if adjustments need to be made to better align with your current needs. 

Step Three: Reinvest

After assessing your portfolio, you must rebalance and reinvest as needed to maintain the appropriate level of risk and ensure that your investments are balanced to maximize your returns.

However, selling equity positions to rebalance and reinvest can be tricky. As Brock explains, “Depending on the growth your investments have achieved up to this point, selling equity positions could result in capital gains taxes as high as 20% — which could offset the benefit of redistributing some of your assets. In some cases, investors are better served by pausing investments in one asset and allocating more of their investments to a different asset class. These types of decisions must always account for both immediate and long-term financial consequences, which makes seeking the input of a qualified financial advisor a necessity.”

By strategically rebalancing your investment mix based on what you learned from your previous assessment, you can ensure continued growth for your portfolio that keeps it in line with your needs and goals. 

As with when you first set up your initial investments, Brock recommends setting up automatic contributions to your investment portfolio. Whether these contributions are made weekly or monthly, making consistent contributions without trying to time the market will allow for steady growth while minimizing transaction fees and gains that would be reported as ordinary income due to frequent buying and selling.

Setting Yourself Up For Success

These principles may sound simple, but reliable solutions for generating wealth through investing don’t depend on complicated schemes. Instead, as Brock’s insights reveal, creating a habit of consistently investing, assessing the performance of your assets, and reinvesting to improve portfolio performance will allow you to build toward your premier financial goals.

Ultimately, consistency and time in the market are key. By maximizing time in the market and leveraging compound interest, you can build a better portfolio and set yourself up for lasting success.

Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.

Published By: Aize Perez