It might appear that managing your portfolio is a competition over having the fastest growing investments. But how each one of us manages our savings varies, and there is no single best approach. Not only do our experiences and backgrounds differ, but the value we place on reaching specific financial milestones differs by age, job satisfaction and security, life-style, expectations, and our understanding of finances and toleration of market risks.
Whereas a one-size-fits-all portfolio is an uncomfortable thought, we all wish there were more clear-cut solutions and formulas to manage our money. Now this hardly means we should give up completely on understanding our finances, it does however, emphasize the importance of setting financial goals and creating an investment plan.
Setting your financial goals isn’t simply about maximizing your earnings and net-worth. If that was the case, all of us would be taking on considerable financial risk. In a sense, our financial goals aren’t that financial at all. They include the expectations we personally place on ourselves and loved-ones.
Portfolio management becomes both more complicated and manageable with the tools and research we have at our disposal. For instance, we all hope to stumble upon a portfolio that provides a 10% return. But how would we feel knowing it had the potential of losing as much as 35% in a given year? Gauging this never ending process, and constantly re-evaluating our goals is a statement of the risks we’re willing to tolerate and accept. Like our goals, our risks vary by our financial stability, the shape of our savings and the market, and the costs and commitments that need to be covered in the future. Understanding this constant process of evaluating our financial risk is the basis from which our portfolio’s strategy and plan is crafted.