Three Simple Ways to Take Control of Your Portfolio

The “set it and forget it” approach to investing has fared extremely well since 2009, as we saw the first 10-year bull market in U.S. history. In the 2000s, however, it was a different story; stocks recorded their worst performance in history.

As the pandemic has reminded us, there is no telling what the future holds—and the same goes for the stock market. By taking control of your portfolio, you can maximize your returns in any market environment. 

Below, we break down three simple ways to do just that.

1. Identify Undervalued and Overvalued Stocks

The dot-com bubble proved that stock prices aren’t always correlated with valuations, as some companies that didn’t even have a finished product experienced massive demand for shares from investors. That was an exceptional time in the market, but the point is, Mr. Market isn’t always rational.

So, how do you determine whether a stock is undervalued or overvalued?

One way is to look at valuation metrics including price/earnings, price/book, and return on equity. Another way is to read research reports. By doing this, you can learn about the things that don’t show up in the numbers, like a new product launch or a change in company guidance. Alternative data sets collected from non-traditional data sources can also be leading indicators of stock performance.

2. Identify Momentum Trades

As a trader, there may be no better feeling than identifying a stock right before it makes a big move. There is no foolproof system to identify these stocks, but by analyzing stock charts and looking at what other traders are doing, you can increase your chances of finding them.

With charts, there are classic patterns that indicate that a stock could be ready to rise or fall. One of the most popular patterns is the breakout, which means that the stock broke out of a range and could be embarking on a new trend. Other common indicators include Bollinger Bands, relative strength index (RSI), and moving average convergence divergence (MACD). 

Stock charts can give you an idea of what other traders are doing; for example, if a stock is breaking out on heavy volume, it means that it is generating strong interest from others. But to get a clearer picture, you have to find out what other investors are talking about. Online communities are an excellent place to see what’s “hot.”

3. Create an Optimized Portfolio

An optimized portfolio maximizes your returns for a given level of risk. So, to create an optimal portfolio, you need to figure out your ideal risk/reward ratio.

You can use the broader market as a benchmark for your portfolio. Does your portfolio tend to outperform the market in a bull market and underperform the market in a bear market? In that case, your portfolio is likely riskier than the overall market. If your portfolio is fluctuating less than the market, on the other hand, you likely have lower-risk investments.

Fortunately, there are metrics that measure your level of risk. One is beta, which measures your portfolio’s volatility vs. the overall market. Or you can look at volatility itself, which is often measured as the standard deviation of returns, and compare that to your benchmark. 

Rebalancing is another useful strategy and it can help to mitigate risk by allowing you to re-weight your portfolio. This involves preserving a certain asset allocation by buying or selling assets as needed.

Consider Using an Investment Research Platform to Help Take Control of Your Portfolio

As you can tell, taking control of your portfolio can be a time-intensive process. To recap, you have to:

• Figure out the fair value of a stock by looking at valuation metrics and research reports.
• Analyze charts, perform technical analysis and monitor online communities to identify momentum trades.
• Compare your portfolio to benchmarks and rebalance it according to your risk appetite.

It’s possible to get all of this information on your own, but it will take a lot of time to gather all of the data and some of it may be inaccurate.

A better option is to subscribe to an investment research platform, like Yahoo Finance Plus. The service gives you access to quality data to evaluate long-term investment opportunities and your portfolio’s risk profile. In addition, instead of needing to glue yourself to your screen all day to identify time-sensitive trade opportunities, you get alerts with trending tickers.

With a combination of charting tools, advanced analytics, and community insights, Yahoo Finance Plus lets you access the insights you need to invest with confidence and allows you to customize your plan depending on your needs. 

By taking control of your portfolio, you can reduce financial uncertainty in a very uncertain world. The right insights and data can make it a lot easier to achieve this goal.