When times are good in the stock market, how do you know if you are maximizing your investment portfolio value? For over seven years now the market has basically been straight up and many feel that they have performed well. But how do you know if you are just riding the market tide, or are really out performing?
Below I will ask you a few different questions about how you and your portfolio are laid out. The whole purpose is to challenge your thinking and expose you to possibly different investment strategies.
1.How much cash on hand do you have? When the market is on a tear, having too much cash on hand (or cash available to be traded) can limit your investment returns. The best way to look at this is in a percentage manor. If the market is in a downtrend, you may want to have 50% or less of your portfolio invested in the stock market, leaving you with 50% or more in cash. Some investors will go 100% cash if the markets turn sour, and some investors like being 99.9% invested when the market is good. So take a look at your portfolio and figure out your % cash is and ask yourself, "should I be more invested?"
2.Are you over invested in mutual funds? A mutual fund load is a big scam, and you shouldn't be paying one. Also, sometimes mutual fund fees can get a bit too high to really give true value. If you have too many mutual funds in your portfolio you may be limiting your success potential. Perhaps you think stocks are too risky or don't know enough to get involved which is fine. Exchange Traded Funds for example offer an easy way to play different markets. In today's electronic, low fee age, you should consider the move to ETF's.
3.Do you have exposure internationally? This is a more opinionated question, because every investor is different. When the US stock market is hot does it really matter if you have international exposure? Maybe or maybe not, but just looking at your portfolio and seeing where you are invested may help you find an easy tweak or two to really give yourself an upper hand.
4.Do you utilize ETFs? Now more than ever etfs are hotter than hot. Off the top of my head you have the gold etf (NYSE; GLD), and the S&P 500 ETF
The point is that, yes the markets have been hot for years, but you should be prepared for when the "party ends". Hopefully, by asking yourself these questions you will be better prepared.
