Simple investment steps for your retirement portfolio
Popular management styles range from passive to active. Let’s discuss this continuum and where you might land. Some investors are buy-and-hold types, meaning they buy stocks and hold onto them for a long stretch of time. This is an extremely passive style and runs the potential risk of occasional large losses, like those experienced in the dot-com bust or the Great Recession. However, buy-and-hold investors generally hope that despite these losses, their investments will accrue value in the long run. At the other end of the spectrum are day traders. Day traders buy and sell throughout a single market day to make profits. One risk of day trading is the high cost incurred from constantly buying and selling investments.
Additionally, day trading can be stressful, require lots of time, and is very difficult. Fortunately, there’s a lot of room between buy and hold and day trading. Your investing style ultimately depends on the amount of time you have to devote your investments, personal preferences and investing knowledge. If you’re employed, have a family, like to travel, or have an active social life, you probably have less time to devote your investments and may prefer a more passive style. However, if you’re willing to spend plenty of time on your investments, you may be more active. Even if you only have an hour or two each week for analysis, you could still choose to own a few stocks.
This would put you in the middle of the continuum. But that’s only if you have the inclination to analyze stocks and do the research, which brings us to the next consideration– preference. Some people love the markets and regularly analyze, research, and manage their investments. Those who enjoy the minutiae of financial markets tend to be more active investors. Others prefer not to think very much about their investments. If you’d rather work on shaving strokes off your golf game or playing with grandkids, you may fall on the passive side of the spectrum. However, if you like being n able to talk investments with your golf buddies or you want to teach your grandkids to invest, you probably need to be more involved in your investments. This could put you somewhere in the middle of the spectrum.
Finally, how much you know about investing also influences your management style. Of course, if you’re
new to investing, your can only do what you know. As you learn more, you may find that you want to more actively manage your portfolio. So to review, when you’re determining where you fall on the passive to active investing spectrum, consider the amount of time you have, your desire for involvement in your finances, and your level of investing education. These three factors will help you determine how passively or actively you’ll manage your portfolio.