A Balanced Approach To Investments

A Balanced Approach To InvestmentsProfessional investors like to talk about the idea of maintaining a balanced portfolio, but what does this really mean to you? Has the global economic slowdown changed the way that we should think about investments and finances in general?

There can be no doubt that the recent problems that have had such a dramatic impact on the global economy seemed to take many experts by surprise. Those who consider themselves to be amateurs by comparison may have found this somewhat troubling. After all, if the experts don’t know what’s happening, then what hope is there for the rest of us?

It’s also interesting to note that there are various reports suggesting that plenty of people have changed their approach to investments. An increasing number of individuals would appear to be looking for opportunities that they view as being safe.

This may be a natural response to a situation that was so closely linked with risks being taken, with the aim of making money quickly. Most of us will understand that, even though there may be winners in such a scenario, it’s also clear that there must be losers.

Understanding safe investments

Before considering this in more detail, it seems sensible to ponder what would be considered a safe investment right now. Indeed, we may well wonder whether such a thing even exists.

When reputable banks seem to be encountering  difficulties, you may feel that it’s not even safe to hold your money in a regular savings account. It’s clear that there’s a problem with the wider system here and that’s something that needs to be dealt with.

In my own mind, I guess that I have a sliding scale of risk. So, looking to invest in shares for the short-term, to take one example, can often seem pretty risky to me. Holding money in a bank account, or investing in government bonds (depending on the government concerned) will be at the safer end of that notional scale.

Does this mean that there’s some sort of guarantee that I won’t lose money? I’m unaware of any such guarantee being available and I would not wish to suggest that this will be the case. What I would say, however, is that there’s a clear benefit associated with evaluating each investment opportunity.

I’ve dealt with some of those issues in my other posts elsewhere, but I’ve no doubt that the basics still hold true. If you rush into investment decisions, then it’s unlikely that you’ll make wise decisions. Sooner or later, your luck is almost bound to run out.

What does balance mean?

A lot of people ask me what percentage of capital should be invested in particular shares or schemes. My own view is that there is no, single correct answer.

Your idea of balance may differ somewhat from a view expressed by others. We can be certain that your view will be shaped by all manner of variables, including your age, you current income levels and what you are planning to do in the future.

Rather than suggesting an investment strategy to you, I would rather ask you two questions:

  • Do you understand the risks associated with your current investment portfolio?
  • Are you comfortable with those risks?

If you don’t understand the actual risks that are involved, then it seems clear to me that you cannot possibly identify whether you have a truly balanced portfolio. Think about the fact that the nature of risks will have changed during the course of 2013.

Once you understand the issues that you are facing, you can then think about whether you are comfortable with those risks. Could it be time for you to make alternative arrangements?