Buckets – Your Way to Wealth

Learning how to manage and build your own investment portfolio is quickly becoming one of the most popular topics on everyone’s lips. Self managed superannuation, share trading, derivatives, all topics once spoken by only the financial elite are now common subjects at dinner celebrations and Friday night drinks.

This interest in financial planning has been fuelled by a rapidly aging population who have realised that their lifestyles will be substantially compromised if they don’t become much more financially literate and responsible.

In addition, the introduction of the World wide web, financial seminars and software have all empowered the Arm Chair Investor to manage their own money. However, many of these home based investors have had little or even no formal training in funds management. Now, while it isn’t a pre-requisite to have a degree in order to profit from various investments, it is imperative that investors comprehend the basics, have a clearly defined investment strategy, realistic goals and appropriate asset diversification.

Now while we all have clear financial goals – to make more money – many do not appreciate the importance of sound asset allocation, or diversification. Many people have made the mistake of putting all their capital into only one investment. Diversification is critical to the success of any long term investment strategy. But, by diversifying, you must balance your investments based on risk and reward. Putting all of your money in the bank may be very secure, however, your overall return will suffer. Conversely, using all of your money to trade in options might produce very high returns, but the danger is very high that you could lose the lot. Therefore you must allocate your assets to suit your personal level of risk tolerance.

Investment Buckets

What are Investment Buckets? Well, at Platinum Pursuits, we like to make investing fun and simple. So when we looked at the topic of Asset Allocation, we likened it to buckets.

In order to protect your money, maximise your investment returns and ensure that you always have sufficient capital to meet your lifestyle, you must properly allocate your funds.

To do this, we think of using buckets. We’ve two buckets to consider, the Safety Bucket and the Growth Bucket.

Safety Bucket

The safety bucket is like a safety net. This is where we put our safe, secure investments and assets, such as our home, term deposits, insurances, etc. The safety bucket will not produce a good return, but then, that’s not its purpose. It is there to ensure that we can always meet our financial commitments and that we never risk our most important assets, such as our home.

Depending on our age, risk tolerance and desired returns, the amount of capital you allocate to your safety bucket will vary, however, you should look to investing between 10%-30% of your capital. If you’re nearing retirement, or financial independence, you may select to increase that proportion, but when still acquiring assets, it’s best to keep the safety bucket as small as possible, whilst still achieving its purpose.

Growth Bucket

The Growth Bucket, by virtue of its name, is obviously where we want to allocate our high return investments. Assets such as investment properties, shares, derivatives, etc. Now, to reach a high return in your growth bucket, you must be prepared to make a loss. Even the world’s most outstanding investors have lost money many times. However, by properly allocating their funds, they’ve been able to come back from those losses to continue building their portfolios.

Within the growth bucket, you should consider segmenting the bucket into Short Term Momentum investments, such as short term stock, option and CFD trades, and Long Term Growth investments, such as blue chip shares, covered calls and investment properties.

Most successful investors adopt a 40-60 rule, in that they grant for 40% of the growth bucket to momentum trades and 60% to long term. Again the choice is yours. The point is that you develop your plan and stick to it.

About The Author :

Daniel Kertcher is the owner of these website : http://www.platinumpursuits.com http://www.danielkertcher.com