Wealth Management: 7 Tips to Building and Managing Your Portfolio

Short of receiving an inheritance or hitting the lottery, acquiring wealth does not typically happen by accident. It takes people a lot of time, effort, and discipline to make a dollar and save that dollar. It takes them even more time, energy, and discipline to take one dollar and turn it into two dollars through investing. The process of saving and investing one’s money is what financial experts call “wealth management.”

For the most part, we all have a responsibility to create and manage our wealth. We need to do this to attain a certain standard of living and to provide for ourselves during retirement.

Unfortunately, wealth management is not a class taught in high school. It’s a shame because everyone could benefit from having such knowledge. To help you better manage your wealth, we offer you the following seven tips on building and managing your wealth and investment portfolios.

1. Practice Discipline

discipline in wealth management Source: Shutterstock

Decades ago, most households had some kind of savings set aside for emergencies and retirement. Somewhere along the line, saving money became a lost art, something that continues today. It’s not that people have stopped trying, it’s just that they don’t seem to have the discipline to save money.

This might come as a shock to you, but Social Security is not future security. If you have any notions about counting your Social Security benefits as part of your retirement nest egg, that would be a mistake. There is even a possibility Social Security won’t be around when you reach your golden years.

The best way to develop discipline as it relates to saving and investing is to commit yourself to some level of saving every month. If you have to lower your standard of living a little to start the process, you should do that, knowing your standard of living will naturally grow as you save and invest.

Here’s a suggestion: set up two savings accounts. Have one for emergencies and another for the future. Deposit a small percentage of your income in each account each month. By using a percentage, you will be able to increase or decrease the amount you save as your income goes up or down. 

If you can develop the discipline to do just this much for your benefit, you are on your way to wealth building.

2. Learn About Risk/Reward Analysis

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Every investment you make will come with some level of risk. Every investment you make will offer you some level of reward. If you want to be an effective and efficient wealth manager, you need to understand the relationship between risk and reward.

There are plenty of investment opportunities that will offer your high rewards. The question is, how much risk do you have to take to get those high rewards?

If you decide to invest your money in the stock of a new company, that company might succeed, causing its stock price to triple in a matter of weeks. That’s a healthy return if you can get it. Of course, that same company might struggle to survive, losing most of its stock value in the process. Ouch! 

The risk is real because the company has no history upon which to base decisions. If you can take the risk, you get a shot at bigger rewards. Likewise, stock in a stable, well-established company will offer lower rewards because of the stock’s predictability. That’s the essence of risk-reward analysis.

As an investor, you have to determine your risk tolerance. What level of risk will you accept to get a certain level of return? 

If you are 20 years or more from retirement, you can probably afford to take more risks because you have more time to recover from mistakes. If you are close to retirement, you would likely be better off taking a conservative approach to your investing activities.

3. Have a Plan of Attack

You can’t manage your wealth by winging it. As part of keeping yourself disciplined, you need to have a plan of attack.

wealth management planSource: Shutterstock

Your plan should start with a set of investment goals. You should decide what standard of living you want to live now and in the future. This will establish your investment goals. From there, you need to figure out how much you need to save each month and how much you need to earn from investing to reach your goals. 

4. Diversify, Diversify, Diversify

We recommend you never put all of your investment eggs in one basket. Why? The stock market (S&P 500) dropped by 33% because of the COVID19 pandemic. Anyone who bought high and sold low took a significant hit to their wealth. If their entire investment portfolio was in stocks, it might take them years to get back to par.

don't put eggs in one basketSource: Shutterstock

The reality is you should divide your investments into at least three buckets. The choices are stocks, bonds, interest-earning accounts, mutual funds, real estate, and precious metals. If you diversify, there is a good chance at least one of your investment buckets will be performing well at any given time.

5. Stay Invested in Your Investments

Being an active investor does not mean you should be moving your money around all the time. You need to stay invested in your investing by monitoring your progress and comparing it to your goals. If you find something isn’t working the way you intended, you can make necessary adjustments to get things back on track. You don’t have to look at your portfolio every day, but monthly monitoring is recommended.

6. Seek Guidance When Necessary

consult a wealth management advisorSource: Shutterstock

As a novice investor who might only get one shot at managing your wealth properly, investing could be a little intimidating. It requires a bit of knowledge about investment options, risk-reward, and the economy. It also requires you to look into a crystal ball to anticipate where the world might be when you reach retirement age.

If you don’t have the knowledge base or don’t feel comfortable directing your investment ship, consider enlisting the services of an investment advisor. Another option is to make use of technology and get the help you need from a Robo Advisor. It could manage your portfolio for you based on the guidelines you set forth.

7. Be Patient

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Rome wasn’t built in a day. You have to be patient and let your investments mature and grow over time. It’s a hard thing to do. But history shows that most of the investment options we mentioned above will appreciate consistently over time. You just have to give them time to do it.

We hope you find this information useful. If you follow some of these tips, you could be on your way to building your wealth and preparing for a prosperous future.

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