Portfolio Management – The Long-Term Piece of the Puzzle.
Portfolio management refers, in the generic sense, to managing whatever money you have available for that purpose; so, any assets or trading vehicles you have in your account would qualify to be included in the definition. However, that’s too general a concept for what I want to do in creating a good plan for managing your wealth; so,…
… I’m including Portfolio Management as a Style of Trading to have a place to work on building lasting wealth through “trading” for long-term growth — representing the long-term portion of your Wealth Building Plan.
Intraday and Swing Trading are centered around more short-term market moves for the short and medium-term parts of your plan, and I wanted to highlight an area that’s been in the traditional realm historically but needs to come out in the open as a viable Style of “trading” to meet your long-term goals, distinct from the other Styles of trading we’ll be using to grow your wealth. Here’s where we will be concentrating on Trend Trading, Long and Short, to take advantage of the longer-term moves in the markets.
Don’t confuse this with “Position Trading”, or Investing, which generally refers to equities and their fundamental worth over a very long time-frame. To be successful, rather than trying to “Invest” in the right security at the right time, which puts you squarely in the “market” with all the risks that come with it, you’re better off taking advantage of market fluctuations by “trading” the trends with multiple Vehicles chosen from your qualified list of candidates that you’ve come to know very well.
By “trading” the trends, you increase your efficiency and eliminate the risk of being at the mercy of the market.
Where the financial services industry wants you to diversify your portfolio between Stocks, Bonds, Commodities, and Cash and “hope” those markets cooperate, self-directed wealth builders will want to use the trends in their chosen markets to gain the advantage and grow their portfolio consistently, along with managing market risk, so they never lose money to the market over time.
Turning the tables like this puts you in control of your long-term financial goals and gives you the peace of mind knowing you have the right Methods to make all your goals come true.
Trading for the long-term is much like short-term trading with an emphasis on a longer time-frame. Concentrating on market trends and finding the right vehicle at the right time for any market situation holds the key to being successful at my version of Portfolio Management. Since trends develop in different markets at different times and only happen 20% of the time or less in any market, longer-term Swing Trading should be included in the mix to get the productivity you want. Trend Trading and Swing Trading start at the same place; so, Swing Trading until a trend develops gives you the versatility to take advantage of a Bull or Bear Trend whenever it occurs. Knowing the difference between the two styles and applying them at the right time, with the right Vehicle, becomes your goal.
Getting the right start here at The Diversified Trader to solve all those challenges gets you to your goal in the shortest period of time — with the best results.
With my concept of Portfolio Management in mind, concentrating on the long-term piece of the puzzle, the objective is to spend less time trading this section and more on timing and selecting the right vehicles. Keep in mind that you’re going to be using these longer-term strategies along with your short and medium-term Methods; so, a lot of the market analysis and day to day intelligence you get from these sources can be used as the basis for selecting the proper long-term vehicles to trade. I want to emphasize Trading for Long-Term Growth to distinguish the long-term section of your wealth building plan from the traditional “buy and hold” stock buying plans put forth by the financial services industry.
Working with the trends in the market, rather than the fundamentals of certain asset classes, puts you in a much better position to grow your wealth consistently and with less risk – taking “hope” out of the equation.
Portfolio Management then becomes Trading for Wealth over a longer time horizon than your Short and Medium-Term strategies, which were meant to get you started building your wealth, trading for income, or trading for growth. The combination of short and long-term strategies is very powerful, and, by using different Methods for each section of your Wealth Building Plan, you gain the diversification of trading cultures that can be just the synergy you need for long-term success.
Everyone is different, though, in their goals and level of involvement in the wealth building process; so, you’ll see in Planning Basics the many ways to accomplish the synergy you need to fulfill your goals, no matter what your life’s situation. I’ve outlined several scenarios to get you started looking at what Direction you want to take, highlighting where Portfolio Management fits into your plans.
This long-term section of your overall plan is at the end of your planning process, when you’ve gone beyond your short-term needs for income and growth. As you “graduate” to this phase of your plan, depending on your previous education at the beginning of your wealthy building journey and current lifestyle choices, you’ll find different situations requiring different approaches to gain the best productivity and security for the capital you’ve generated. The direction you take here might look something like one of these choices:
- Manage your Long-Term Portfolio yourself, using tools specifically designed for that purpose, after you’ve developed the short and medium-term Methods you learned while getting started. From a technical standpoint, this is the closest you’ll get to becoming a trader. You will, in fact, become a “trader for long term growth”. The Trading Partners you’ve come to know and love, while building your knowledge base and capital, will still be there for the guidance and market intelligence they provide. When you’re choosing your long-term positions, they’ll give you the insight into the market you’ll need to succeed. The tools I like to use to manage long-term portfolios are generally built to use Artificial Intelligence in their programs and have been developed over many years. The analysis is automated, making your selection process so much easier and a lot more accurate. For those of you who like working with programs and like the hands-on approach, this direction will work out very well and can produce some outstanding results.
- Manage your Long-Term Portfolio along with your short and medium-term Methods through Trading Partners picked for each stage of your wealth building plan. Here, the process of transitioning to the longer-term part of your wealth building plan should be very smooth after your experience and education with your Trading Partners that got you to this point. I would just add specialized Trading Partners at this point to concentrate on the longer moves and get the well-researched picks to fill out your portfolio. We’re still looking at market fluctuations to be the basis for establishing your positions and growing your account, and the addition of the longer-term view will give you the direction you need.
- Manage your total Portfolio as your Long-Term Wealth Building Plan, using a combination of trading tools and partners to make the best decisions. This scenario is appropriate when you have a large account and want returns that far outstrip those you can get in the traditional marketplace, but you don’t want to actively trade the shorter-term strategies. Depending on your experience level, you should fill in your education before initiating any program on your own. Learning about short-term trading will give you excellent training for the longer-term strategies. You can do all your training in conjunction with developing your Long-Term Methods and establishing your management plan. This direction is ideal for using portfolio management expertise from specialized Trading Partners. The rest of your training will come through the Methods you use to put your plan into action.
All the scenarios above are summaries of possible long-term directions one might take and are covered in more detail in Trading for Wealth, where plans can be developed for any wealth building program.
The End Result
Whatever your situation, you’ll want to buy and sell Stocks, ETFs, Forex Pairs, and Futures by analyzing market fluctuations and actively trading your positions for the best entry and exit points indicated by the tools you use with your own analysis or through a Trading Partner’s analysis and recommendation.
With the variety of trading vehicles available, your long-term prospects will look brighter every day.
Along with the Trading Partners’ systems you’re relying on, having your own chart setup is always a good idea to evaluate and compare signals on any of your positions. Take a look at four alternatives with my chart settings to get a sampling of what the universe might look like.
Stocks and ETFs
Commodities and Foreign Exchange
The ability to trade various markets gives you the flexibility to be positioned for growth to a much higher degree. Adding Options to the mix can multiply your returns by adding leverage or giving you greater certainty by managing risk. And don’t forget about leveraged ETFs for better returns.
This stage of your wealth building plan will control the largest share of your wealth after you’ve developed your short and medium term programs. The line between longer-term swing trading and trend trading for long-term growth gets blurred by what direction you take; so, the portion allocated to this stage can run as high as 90% for larger accounts (100% for scenario 3 above) and lower percentages as your account grows. Your situation will dictate this allocation as your overall trading plan develops. Trading for Wealth will keep you on the right track.
Trading for Long-Term Growth
To Your Long-Term Success,
Your Research & Development Coordinator
If you’re new to all this, have a look at Education – The Path to Independent Wealth Management to get an overview of the steps I’ve laid out to get you there. Then, Sign Up in the Right Sidebar to get my quick-start, auto e-mail to light the way to Navigating The Diversified Trader and the easiest way to get started managing your own money.