4 Tips To Improve Your Investment Portfolio

Portfolio maintenance and management is a skill slowly learnt over time and refined with experience. Even the best fund managers do not claim to be experts in portfolio management as the business world is dynamic and constantly evolving, and market conditions can be volatile. However, knowing the four simple tips below can help you as an investor to improve your portfolio management so that you can sleep better at night.

Tip 1: Avoid having too many positions

Although diversification is good as it helps to mitigates risks of a blow-up in any one stock, over-diversification is also not recommended. I recently wrote an article on the topic above, so keep in mind that although circumstances may vary from individual to individual, having more than 25-30 positions makes it very tough for an investor to monitor the portfolio. Having that many positions may also soak up a lot of time and effort from the investor.

A comfortable number of stocks to own would probably be somewhere in the region of 15 to 20. Some of the 15 to 20 stocks should ideally also be companies that require relatively less monitoring due to their stable business characteristics.

Tip 2: Own stocks which pay dividends

Having stocks which pay dividends is always a positive thing, as dividends that flow in provide cash flow for us. Having the ability to pay dividends also signifies that a company is generating healthy free cash flows. Dividends act as a form of regular income for investors and the good news is that they are tax-free too (at least in the case of Singapore-listed stocks)!

Tip 3: Perform periodic monitoring

As investors, we should spend time to monitor the financial health of our underlying investments, so it should not be a “buy and forget” operation. At the minimum, we should go through the quarterly earnings reports of our invested companies – the key is just to assess whether our investment thesis remains valid, or if the business is taking a turn for the worse and may stay that way.

Tip 4: Review position weights

I previously wrote an article on position weighting, and – this is related to Tip 1 – it important that we do not concentrate too much of our portfolio into just a few companies. Ensure that heavier weights in our portfolios are assigned to companies with hard assets, have stable operating characteristics, and are not overly sensitive to business cycles. Cash flow and dividends are also important considerations, as mentioned above, and we can ensure we receive a steady stream of dividend income if we weigh our portfolios more towards income-generating stocks.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.