This week in the blog we are going to take a hiatus from the preparedness series to address a question that I have received a lot recently. I get this particular from both veteran traders and newbies alike. The question I am referring to is “how do I build a solid portfolio that needs less attention from a managing standpoint?” This is a very common question and there is a tonne of reasons why someone may want to look into this subject matter. We will explore those reasons and take a high-level view of how one can put one of these portfolios together and the necessary items that need to be addressed if one is to take this route.
WHY? First the why, why would someone want to build a portfolio that frees them up from time on the machine? There are literally a million reasons for that and I am not going to name them here but what I will do is talk about the common thread in all of the reasons. Here goes, everybody gets into trading to make money and that is very logical because it is an avenue to create a cash flow stream in one’s life if they are so inclined to get educated and learn the ins and outs of the nature of trading. However, it has been my experience that money comes first but a much more important goal in trading is TIME! The money for a lot of people is used to buy their time back. Maybe they want to spend more time with family or maybe they want to spend more time on the golf course, whatever the reason is they are trying to get back their precious time because we all know that is absolutely limited for all of us. So, the why for some is TIME and if you spend all day and night on the machine then you are really just using your time differently.
So, if someone has asked this question because they wish to buy their time back then putting a more passive system in place seems logical. For a lot of us in the Tackle community, we are traders and we love to trade but at some point, we may also wish to pull back from the very active trading to the more passive route, maybe even just for a short time to vacation or spend some quality time with the family. This is where a great portfolio can come in handy.
HOW? This is the section where we look at some ideas that need to be addressed before a portfolio can be put together that can satisfy our needs for more passive income. Building a rock-solid portfolio requires some thought and some detailed research to get the pieces just right. Also, building a portfolio for most is not going to happen overnight and so it will also require patience to do it right. Here is a list of considerations.
GOALS – what kind of return and cash flow requirements does this portfolio need to have?
Starting Capital – are you starting with a couple million dollars or are you starting with a couple thousand? This will dictate what price range of positions you will hold.
Asset Classes – this will be able paper assets in the portfolio but not all paper assets are correlated and therefore one must think about the mix of paper assets because the magic is in the mix.
Fundamentals – once you have decided what different types of paper you want in the portfolio, whether that includes paper gold, paper oil, equities, notes or all of them then you will need to research which ones are the most fundamentally sound and the question you need to ask yourself is, “if I left this asset alone for ten years would be it stronger or weaker when I returned? If you believe the answer is stronger then you probably have something to dig in to.
Capital Breakdown – this is where one decides how much to put into each section of portfolio. You can break it down to equal portions or if you have reason to have more in a hedge then it can be broken down into any slices one sees fit to have.
Price – finally is the price you pay to acquire the assets. You can plan out how you are going to assets and in what quantities you require. You can plan to take advantage of when these assets become cheaper on a temporary basis like perhaps during a market pullback or a missed earnings can be an opportunity.
The above is a list of considerations that need to be pondered before starting to build out the portfolio for strong passive income and security. This is just the tip of the iceberg when it comes to putting this all together as each one of these items is a topic that requires attention and devotion as well as expansion. The goal of this weeks blog is to get you thinking about what is necessary to achieve the aformentioned portfolio.
If you give this some thought you may find that you have more questions than answers and that is ok. Building a passive portfolio, at least a good one, is more of a journey and less of a destination.
Trade Well,
Coach Holmes
