This is definitely something that as you start out in your investing career, you need to get right. Firstly as a rookie, you need to understand risk control. Most professional investors make on average 10 to 15% investors per annum and remember these are professional investors. When I see a rookie team up with me or avail of the subscription service I offer and straight from the off demands nothing less that 100% return, I start to get worried. You see, when you have an individual like this who is looking for big gains, you know you are dealing with a person who will take high risk. Of course you can make those gains and even double or triple them but the risk is far far larger and if you are a person over 40 years of age with no retirement funds set aside, it is a big no no, from me. Let me explain..
By using instruments such as leveraged etf’s,call and put options, and high growth potential penny stocks, you can potentially make high 3 figure returns per annum. The problem is also is that you could get wiped out and as Ive said, if you are over 40, the risk is not worth it. Of course ,to investors in their twenties, there is more scope for taking more risk as the investor in question has time to recover from his potential loss but again always risk control should be paramount. As Robert Allen says in his book “Multiple Streams Of Income”, the secret in investing is
1) Think Long Term
2) Let you profits compound (I.e, do not touch your profits..)
Look, a mere $10k invested at a 20% annual compounded return gives you $2.3 million after 30 years. The problem is that investors wont lock up their money for that long but guys, you have to, if you want to make it in investing, period.
Now, to talk about a model portfolio. Here is what you do. You should be invested in different asset classes to avoid getting wiped out so to speak. So you could be in bonds, cash, commodities, real estate, equities, etc. Now if you are mostly long with your equities, then it is also advisable to have a hedge. Rookie investors make the mistake of putting all their money into stocks and then get wiped out when a stock market crash happens. A good hedge is when you are short a stock or an index. So basically a profession investor researching companies all his life. He know a good shorting opportunity when he researches that particular company. Now, if the stock market rallies hard, his long picks should grow in value obviously but if the market tanks, this is where he is protected on the downside as he will expect his short to tumble which will protect his portfolio as his long picks correct for a while.
You Would Have Made Money Here From Different Asset Classes
Understand?. Yea ultimately you will never make as much gains with this method but again, you need to think about the long term and risk control. I get the question about why jot just short the s&p index as a hedge. Why, because if the market is in a bull market phase, thats not a good hedge. Your hedge should be ultimately a pick that you expect to make money from and will protect you on the downside.
So back to the model portfolio. Plenty of positions, different asset classes and hedged and you are set to go.., as long as you have chosen right!
good insight