How to better manage your investment portfolio

Investing is riskier business than putting your money in an FDIC insured bank account, but with proper management of your investment portfolio, you can take those risks, and make them into money. However, to properly manage your investment portfolio, you must first determine what style of management is right for you, and what type of market capitalization fits you best. So, the following are some tips for how you can better manage your investment portfolio:

1. Determine your management style: Active or passive.

To actively manage your investment portfolio you would want to be the kind of person that believes in your ability to seek returns that beat the overall market by selecting securities you think will perform well. To do this you would want to conduct research-not just looking on line like every other person, but setting up a meeting with a company's management team, for example-you will then attempt to use the research you did to identify investment opportunities that other investors may not recognize. In other words, you are going to invest in other companies, and have higher potential for returns.
Passive management, on the other hand, means that you do not want to do the work, or take that much risk. You feel that simply investing in the same securities that make up a particular market index may produce superior long-term results. So, in other words, you believe in a concept called market efficiency. In other words, you are the type of person who will manage your investment portfolio under the assumption that all relevant information available about a company is taken into account by the market and is thus reflected in that company's current stock price.
2. Evaluate risks and potential:
Part of better managing your investment portfolio is knowing how to evaluate the risk of a company versus the potential. To do that, you will want to know what type of company it is, and what that means. For example:
Small cap companies are high risk, but also high payoff. They usually offer significant growth potential but are more prone to volatile stock price swings and generally involve comparatively high investment risk. Small caps are considered the most aggressive of investment types. They are so risky because they are frequently susceptible to intense competition within rapidly changing industries.
Your next option is a midcap company. These are often found in maturing industries or markets. Midsize companies may be in the process of increasing market share and improving overall competitiveness. These are often good investments if you choose the right company, as this stage of growth is critical and is likely to determine whether the company eventually lives up to its full potential. Midcap stocks may have growth potential similar to that of small cap stocks, but with less risk.
Last, you have large cap companies. These are usually dominant players within mature industries or markets. Investors who invest in this type of company generally anticipate that large cap stocks will produce strong, stable returns with less risk than smaller, newer businesses.
3. Determine your market capitalization type:
Market capitalization, or market cap, refers to the value of a publicly-traded company on the open market. So, to better manage your investment portfolio, you need to determine capitalization. To do this you multiply a stock's share price by the total number of outstanding shares. So, as an example, if a company issues one million shares of stock trading for $30 each, its market value will be $30 million.
- Small cap company-market value of generally $2 billion or less
- Midcap company-market value between $2 billion and $15 billion
- Large cap company-market value of generally $15 billion or more
Knowing the market capitalization can help you determine potential risk and potential return. Market capitalization typically corresponds to where a company may be in its growth cycle. Just starting out, some what experienced by growing, or stabilized growth.
If you can do the above three things, and determine what your style is and what kind of companies you are most interested and comfortable investing in, you will have a better managed investment portfolio because it will be more specific to you!