6 ways to enhance your share portfolio in uncertain times
World markets have recovered since the Covid-19 sell-off of early 2020 and are trading at higher levels than before. Uncertainty remains regarding the global economic recovery, but we know that great investment opportunities often follow in the wake of a market crisis. The guidelines below can help you to ensure your portfolio is optimally positioned for the long term.
Always invest with a plan
If you don't know where you're going, it is easy to go astray. Having a personal investment plan in place can help you avoid this pitfall. A good plan will also help you to clarify:
Goals and objectives – what are you investing for and what do you want to achieve?
Risks – what risks are relevant to you or your portfolio? Your goals will determine what risks are appropriate and acceptable to your investment.
Asset allocation – what percentage of your total portfolio will you allocate to local equities, international stocks and other asset classes?
Diversification – allocating to different asset classes will help you to diversify your portfolio.
Look carefully for opportunities
Despite volatility, the market continues to offer opportunities to invest into companies that are trading at a discount to their peers or, alternatively, into sectors that are performing better than the rest of the market. Many investors elect to invest in companies, strategies and sectors based on recent performance. Such strategies could easily disappoint, however, as the company or sector could be nearing the end of its particular investment lifecycle. You need a robust investment strategy that can help you distinguish shares or sectors with potential to outperform and which are still trading below their fair value.
Focus on the right time horizon
Many investors may have been tempted to sell equities in early 2020, when Covid-19 fears prompted the fastest sell-off in history. However, those investors who sold off will have missed the subsequent recovery, which was also the fastest in history. Those who were able to stick to their trading plan despite the noise and uncertainty fared best. Remember that if you are saving for a longer-term goal, like your retirement 25 to 30 years from now, what the stock market does in the next 12 months shouldn't be your biggest concern.
Rebalance your portfolio
Rebalancing is the process of ensuring your portfolio remains in line with your investment plan and goals over time, and it is an aspect of investing that is often overlooked. Rebalancing can be difficult because it forces you to sell the shares that are performing well (and consequently making up a larger portion of your portfolio than you intended) and buying more of the shares that aren’t doing quite as well. It can feel deeply uncomfortable at the time, but it is an important part of sticking to your investment plan and strategy.
Understand the difference between growth and value shares
Shares follow sentiment over the short term and fundamentals over the long term, so plan your investments with a margin of safety to ensure good growth potential. You should pay for what you know about the company and not for what you hope for. Your investment goal should also differentiate between investing for capital growth over the long term or shares that offer good value at the moment.
An adviser can help unlock opportunities
A skilled financial adviser can be invaluable in helping you unlock the market opportunities available. Applying sound investment principles and doing the required research can help you develop a targeted investment strategy. This in turn can help you outperform the market, even when conditions are turbulent.