Subscribe to usPersonal Portfolio Management for the Timid
Published Date: 2005-07-16 13:58:39 WorkOnInternet.com


Read More on Investment & Financial Strategy401K planning is a big topic among Americans. The push for Americans to save personally for retirement through their companies' 401K does hold some risk for the investor. Since not many workers remain with one company for decades, a 401K may not roll over well from the company-sponsored plan to a self-directed 401K. A self-directed 401K plan allows the investor to make personal decisions about the money is invested. Many of these investors mistakenly believe that putting all their money into a high-rate return mutual fund is a great strategy; this error doesn't bode well in the long run since the funding is occurring while the share's value is at a peak level. The more sensible and balanced approach is to manage your portfolio with lowered risks while you also get a good rate of return.

One of the first tips for maintaining a balanced portfolio is to purchase a mix of stocks and bonds. Conservative individuals may be afraid of the perceived volatility of stocks. While the stock market is capable of great volatility, there are some excellently managed mutual funds that invest conservatively and should appeal to even the most risk aversive. With a balance of stocks and bonds, the portfolio maintains stable growth in those periods that experience a downturn in either the stock or bond market in any given year. Historically, bonds do well when stocks may be faring poorly in any given year, but there are years like 1987 and 1994 where both markets were down.

It seems perplexing at first but a portfolio with about 15% of the money invested in stocks is less risky than an all bond portfolio. While bonds do give a fixed yield, in years that the bond market declines, investors can lose money. If the investor is losing money with bonds and that's all that is in the portfolio, it's easy to see that there is risk of loss. However, if there are some stocks in the portfolio and historically stocks and bonds don~t decline at the same time, the likelihood of the stocks rising in value is high. This offsets any loss in the bonds resulting in a lower overall risk for the investor.

Another risk of a too conservatively set-up portfolio is running a lower rate of return. A portfolio's return is typically stable, yet not as high of a rate of return on average, when an investor opts for a lower risk. Increasingly more dollars are needed to maintain a standard of living as the cost of living creeps up yearly. Real growth in the portfolio is not achieved when the portfolio operates to keeps pace the cost of living. Inflation is this phenomenon.

If you are a conservative investor or have become afraid of the stock market due to the turmoil of the 1990~s, consider adding some modest amount of risk to your portfolio in terms of stocks. This will add balance to your investments and actually reduce your overall risk. If you are afraid to invest on your own, consult with a financial advisor and clearly state your position as a conservative investor. Any ethical advisor will follow your wishes.

Copyright 2005 Amy Renca. All rights reserved.
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Amy Renca is the webmaster for FL Management Inc a primary resource on the internet for information on management. For more details visit her archive of articles: http://www.flmanagement.com

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