Get a Grip: Nine Steps to Controlling Your Investments

When it comes to personal finance, often the difference between poverty and prosperity is how much control you have over your investments.

The sad fact is that some people just don’t either have the time, inclination, or confidence to take control over their own investment portfolio. That’s a big mistake, since no one will step in for you and make good on a lousy asset allocation strategy or redirect misguided fund selections that can lead to portfolio losses and threaten your financial well being.

Fortunately, getting a grip on your investments is easier than you think. In fact, you can get the job done in nine easy steps.

Step 1: Define Your Goals

Any good marksman will tell you the key to hitting a target is having a target. Having something to work toward is the first step in investment success. Knowing your financial goals, whether it’s retirement, a home or college education, will help define your investment strategy and set you on the right path.

Step 2: Know Your Net Worth

Net worth is simply the total of all the assets you own less all of the debts you owe. Your net worth gives you an understanding of where you are in relation to achieving your goal, and serves as a useful indicator of your overall financial health.

Knowledge of how you are tracking toward your goal is critical in the investment process, and measuring your net worth from year to year is a critical yardstick to evaluate success.

Step 3: Know Your Risk Tolerance

Your overall financial risk tolerance depends on two things: your attitude towards taking risk and your capacity to take risk.

First, your willingness to take risk is a personal consideration. Some people find the prospect of volatility in their investments scary, while others are comfortable with volatility if they believe it will lead to a higher return. If you stay awake at night during market downturns worrying about your portfolio, chances are it is too risky for your comfort level.

On the other hand, your capacity to take risk is usually driven by your financial circumstances. If you don’t have the financial ability to ride out a rough patch in the markets, then your capacity to take risk is diminished, even if your personal preference is to be more aggressive.

Step 4: Diversify Your Assets and Rebalance Periodically

When your investments are diversified, or spread across different asset classes or types of securities, they work together to help reduce risk, while still helping to achieve an expected level of return. So consider a combination of slow and steady blue chip stocks along with potentially higher-flying growth stocks. Mix in some international stocks, diversify amongst different bonds, and consider real estate and commodities, which have also been shown to enhance portfolio performance. Ultimately, how much to allocate between stocks, bonds, cash and other asset classes will all depend on your investment objectives and risk tolerance.

Once you have established an appropriate asset allocation, make sure you stick to it and rebalance regularly to ensure your portfolio stays on track.

Step 5: Properly Research Investments

This one’s a no-brainer— you’ve got to do your homework.

Read prospectuses, review company financial statements, and check out sites that provide thorough information on companies.

When investing in mutual funds or ETFs, be sure to do your due diligence and look at fee structures, management tenure, performance during bull and bear markets, and other attributes.

In the investment world, know this: knowledge really is power.

Step 6:  Be the Boss

Never give a financial broker the right to buy or sell without your prior approval. This avoids any surprises, and you’ll have control over what enters and leaves your personal portfolio. Remember that you’re the one who will have to live with these decisions for many years to come.

Step 7: Check Your Ego/Emotions at the Door

One of the biggest errors investors make is investing with their emotions: When stocks rise, they buy, when they fall, they sell. That’s no recipe for investment success.

One of the benefits of sticking to your asset allocation and then rebalancing is that it forces you to sell high and buy low. It’s important to stay with your plan, even though your emotions may be saying otherwise.

Step 8: Don’t “Set and Forget”

Sticking with your plan doesn’t mean you should leave it running on auto-pilot. You need to maintain control over your investments and monitor your personal situation on an ongoing basis. Life is capable of dealing many twists and turns, and it is critical to re-evaluate your portfolio in light of your changing circumstances. Reviewing your risk exposure and asset allocation plan annually is key.

Step 9: Reap the Rewards

You are your own boss and the portfolio you create will have your personal stamp on it. So enjoy the benefits and the freedom that genuine financial independence provides.

As you do so, consider how far you’ve come in taking control of your financial life. After all, nobody has as much invested in your financial future as you do.

Michael Blumenthal is a founder of Jemstep, a free online investment guidance and management service that helps individual investors make better investment decisions and achieve their financial goals faster. Jemstep’s investment evaluations, based on patented technology and objective market data, are unbiased and transparent. Jemstep is a registered investment advisor under the rules and regulations of the U.S. Securities and Exchange Commission. Visit the site at