1. Know your risk tolerance
Your risk tolerance will change mostly depending on age. As you get nearer to retirement, you will want to limit your risks – which will also reduce your profits. More aggressive investment goals can be attempted when you’re further away from needing to use your investment income.
Still, your risk tolerance will be determined by your income, your investment goals, and how comfortable you are with your investment strategies.
2. Know the importance of diversification
When Ramon de Oliveira works with his clients to build a financial portfolio, he makes sure they understand how important it is to diversify their investments to reduce the amount of risk they are exposed to. You can hedge against unfortunate financial setbacks by investing in a wide range of financial instruments, different industries, and different asset classes.
3. Keep it Simple
Optimum, well-diversified portfolios do not need to be complicated. Diversify between stocks, bonds, real estate, and some “alternative assets.” Use low-cost index funds or ETFs as much as possible to avoid spending money on unnecessary fees and commissions. And remember that you can be “diversified” but still own assets that are “correlated”, like real estate and certain asset-back securities. This confusion between diversification and correlation is one of the causes of the 2008 financial crisis.
4. Know where to get advice
The old adage is true – a fool and his money are soon parted. Too often, new investors download a free trading app that makes it easy to buy and sell stock. But trading securities is not building a portfolio.
Apps like Robinhood encourage investors to buy and trade stocks daily. Any reputable financial planner will almost always warn against doing this. Ramon de Oliveira suggests that these investment trading apps are more like gambling apps or gaming apps.
Always avoid financial advice that attempts to predict certain market sectors. Instead, Ramon de Oliveira recommends that investors diversify by spreading their wealth and working with a wealth manager to build a sound portfolio.
5. Know asset protection strategies
Ramon de Oliveira has personally witnessed two investors with identical savings and expenses and similar portfolios of bonds, stocks, mutual funds, and real estate holdings end up with vastly different amounts of wealth. Why? Because of how they structured their holdings and how they protected their assets.
The goal is to put in place strategies that will guard your wealth from taxation, seizure, or other losses. Learn the rules, laws, and regulations that are meant to protect your financial assets.
These include setting up limited family partnerships (FLP), asset protection trusts, insurance vehicles, jointly-held real estate property, individual retirement accounts (IRAs), and certain tax structures.
Queued Ramon de Oliveira
Ramon de Oliveira, who runs RdeO Consulting LLC, a financial advisory firm in New York, NY, delivers strategic advice to investors on investment strategies and risk management. He has seen clients lose money by taking financial advice from friends and family. He suggests working with experienced money managers that are knowledgeable about a wide range of investment opportunities.