What to Know About Investment Management

Managing your investments requires study.

Create a Plan

Successful investment management helps you down the path of achieving your goals such as saving for your children's education, purchasing a larger home and having the lifestyle you want when you retire. You need a plan to guide you in the right direction with your investments. Christopher Hensley, a financial adviser and president of Houston First Financial Group, advises: "When someone starts managing investments, the very first thing they should do is start with a financial plan or road map. This goes for anyone, but especially if you are a novice, you will want to know certain things before you even get out of the gate. Simple questions like how much, how long and what financial goals are these funds earmarked for will need to be answered before you start investing."

Tolerance for Risk

Investing has an element of risk, and the value of your investments may decline at certain times. Not all investors deal with this reality the same way. When the markets are volatile, some investors lose sleep, while others remain calm, convinced that stock prices will rebound. Hensley says that assessing your tolerance for risk is something to do early on in the process. You want to select investments for your portfolio that are aligned with your risk tolerance. But you also should periodically re-evaluate the risk level of your portfolio. Starr Cochran, CFP and personal finance author, advises, "If you're anguishing as you watch your account fluctuate, perhaps a more conservative approach may be in order."


Not all investments go up or down at the same time, or at the same rate. Diversification means choosing more than one type of investment, such as a mix of stocks and bonds, and also a mix of different stocks or mutual funds. The benefit of diversification is that if one investment declines in value, others may go up, so you may still achieve an overall positive portfolio return. Finance author Laurie Itkin says, "Although it might be fun to put all your money into one hot stock, long-term success comes from spreading your money over many types of asset classes such as U.S. dividend-paying stocks, emerging market stocks, commodities, real estate investment trusts, master limited partnerships and even bonds. It is simple to get exposure to all these asset classes using low-fee, exchange-traded funds."

Dollar-Cost Averaging

Many investors hope that they can pinpoint the right time to buy an investment -- when the market is poised for a rise in prices -- and exit the investment just before the market turns down. This strategy is referred to as timing the market, and if not successful, it can result in jumping in and out of the market at precisely the wrong times. This pitfall can be avoided through a strategy called dollar-cost averaging. "Many new investors are nervous about investing when the market is 'too high,'" explains Itkin. "Investors who said that in December 2012 missed out on a 30 percent bull run in 2013. By periodically contributing the same amount of money at regular intervals, you don't have to worry about timing the market. When prices are high you buy fewer shares; when prices are low you buy more shares," she says.

Long-Term Focus

It can be challenging for investors to stick with their investment plan in the face of market volatility. There is a tendency to overreact to short-term swings in the market and deviate from an investment strategy. Keeping a focus on long-term objectives is important. Robert L. Riedl, CFP, director of wealth management at Endowment Wealth Management Inc., says that one way investors get off track is that, "they let their emotions control their irrational short-term investment decisions and fail to recognize the value of a long-term time horizon, the power of compounding returns and the power of dollar-cost averaging." You do need to monitor how your individual investments are performing and make adjustments if you are dissatisfied with a given investment's performance. Starr Cochran advises, "If the value of your portfolio goes down, it doesn't necessarily mean you should jump ship. It can be an opportunity to re-evaluate your investments. How are they doing compared to their peers? All investments are not created equal."