Managing a Mutual Fund Portfolio
1. Market Timing Strategy assumes you can get into and out of sectors or assets or markets at the right time. The ability to market time means that you will forever buy low and sell high. Unfortunately, few investors buy low and sell high because investor behavior is usually driven by emotions instead of logic. In fact, most investors tend to do exactly the opposite - buy high and sell low.
2. Buy and Hold Strategy is the most common investment strategy. The reason it is most commonly preached is that statistical probabilities are on your side. Markets generally go up 75% of the time and down 25% of the time. If you employ a buy and hold strategy and weather through the ups and downs of the market, you will make money 75% of the time. If you are to be more successful with other strategies to manage your portfolio, you must be right more that 75% of the time to be ahead. The other issue that makes this strategy most popular is the fact that it is easy to employ. This does not make it better or worse, it is just easy to buy and hold.
3. Re-Balancing Strategy. Re-Balancing is somewhat of a middle ground between market timing and buy and hold. With this strategy, you will re-visit your portfolio mix from time to time and make some readjustments.
4. The Wing it Strategy. This is the most common mutual fund strategy. Basically, if your portfolio does not have a plan or structure, then it is likely that you are employing a wing it strategy to manage your portfolio. Take the test, if you are adding money to your portfolio today, how do you decide what to invest in? Are you one that searches for a new investment because you do not like the ones you already have? A little of this and a little of that? If you already have a plan or structure, then adding money to the portfolio should be really easy.
The key to portfolio management is to have a discipline that you adhere to. The most successful money managers in the world are successful because they have a discipline by which they manage money. Believe it or not it has less to do with discipline and more to do with the fact that they have a plan. Warren Buffet said it best
"To invest successfully over a lifetime does not require a stratospheric I.Q., unusual business insight, or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."