May 17, 2017 - 5:27 AM EDT
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Are You Really Getting the Most Out Of Your Financial Portfolio?

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I’d like to take this opportunity to discuss something that I thought I was doing right for several years, until I found out I was doing it all wrong. Let’s talk financial portfolios for a moment. For many of us, a balanced financial portfolio may include a mix of savings, investments in stocks (domestic and foreign), Forex, gold and/or crude oil. Within that broad basket are things like exchange traded funds (ETFs), treasuries, and so forth. It’s a confusing morass for a novice investor, but it’s really important to understand what your financial portfolio contains. I recently married and became a parent, so I decided to pay more attention to the composition of my financial portfolio. Here’s something interesting: After the financial crisis, which resulted in a global recession, my financial portfolio took a big hit. I never realized it, but all the gains that I had racked up for years had evaporated into thin air. I began to question the veracity of financial planners who keep pushing the same narrative: stocks, stocks, stocks.

Like so many others before me, I poured over the economic data looking for clues about which assets to invest in. I realize that tech stocks are subject to bubbles and I certainly don’t want to see my investments skyrocketing only to have the bottom fall out. Of course, there are many top tech stocks that have held their value over the years including Microsoft (MSFT), Google (GOOGL), and Facebook (FB). The Twitter (TWTR) birds never really took off, and many biopharmaceutical stocks are far too risky a proposition for me to invest in.



So there are a few things that I’ve learned over the years and I would like to share some sage advice with neophytes and fellow investors. For starters, any financial portfolio that you build needs to be actively managed and annually rebalanced by you. You cannot afford to take your finger off the pulse with your financial portfolio. Stocks are volatile at the best of times, and their values can change on a dime. Every time the Fed raises interest rates, or a major economic data release is announced, you should watch your stocks for any signs that they are reversing.

Conventional investments require the purchase of the underlying asset – stocks in this case. Is this always the way to go? Methinks not. I have been dabbling in what I like to call contrarian investment options such as CFD Trading , and I found them to be a really useful addition to my financial portfolio. Consider that most portfolios are comprised of purchased assets. These could be commodities, indices, stocks or Forex.

Understand the Mechanics of Financial Markets

The problem with this – barring futures options – is that the asset needs to appreciate before you see returns. With derivative trading instruments like CFDs, this is unnecessary. You can speculate on the future price movements of the underlying asset at short notice. So, if you anticipate that the upcoming earnings release of Google, Facebook or Microsoft is going to be negative, you could place put options on the asset as a hedge against decreased price movements in your traditional stock portfolio. This safeguards the integrity of your investment nest egg. Of course, it is imperative that you understand the inner mechanics of the financial markets to be able to place the right trade at the right time. When you have a family, or serious financial obligations to take care of, your financial portfolio becomes much more important. Most of us will not be able to work until we draw our last breath, making a retirement nest egg much more important.

Derivatives trading is nothing new, but it is unconventional. For many investors thinking of putting together a retirement portfolio, it may prove beneficial to eschew the advice of traditional financial planners and consider allocating a small percentage of your retirement towards unique trade ideas and actively managed derivatives products. Speculation is a complex form of investment, and it behooves traders to conduct the necessary research of financial markets and economic indicators.

Remember that no form of investing is guaranteed secure, but there are ways to hedge against market downturns by taking opposing positions – for example an allocation of gold and the JPY, as well as a healthy mix of equities. This counterbalance will eventually pay dividends whichever way markets go. For now, the short-term prognosis is risk-on for equities, but any geopolitical uncertainty will certainly bring out the gold bugs!

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Source: Equities.com News (May 17, 2017 - 5:27 AM EDT)

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