Take a look at your investment portfolio if you have any. What does it consist of? What are the elements, mainly stock, options, bonds, commodities or mutual funds? And, how can you tell whether it is balanced?

An investment portfolio should be spread, like the saying preaches; don’t put all your eggs in one basket. But for different people this means different things. First you must be aware of your risk profile. If you like to take more risks, the investments in your portfolio could be less diverse. You might concentrate more on one particular instrument (option, stock). Still, you may take more risks than necessary. A mutual fund investor could spread its portfolio with only a few investment funds. The active trader could spread its investments over a short (trading) period.

The first thing we learn from this is that a so-called balanced portfolio is relative to the profile of the investor. Less untrue is the fact that in the investment game, there appear to be rules that are universal. If you have only some experience you know that you should ‘never’ build-up in one day your complete portfolio, but rather buy parts over time.

Then you have your portfolio. Now how do you know if it is balanced? There are more ways of checking this. One way is very simple and helpful. Again you need to check your preferences. We all know our preferences, but they are not that explicitly communicated. If you are a single, stand-alone investor you do not need to share your preferences with others. It is about your portfolio and you are free to make your moves. This changes when you are managing a team (of investors).

Then the question. What is more difficult to manage? Something you favour or something you are not eagerly doing?

With this answer you can check -- the balance of -- your portfolio. If you are only following the easy part and leaving the difficult decisions for what they are, you know you’ve got a problem.

© 2006 Hans Bool

Hans Bool is the founder of Astor White a traditional management consulting company that offers online management advice. Astor Online solves issues in hours what normally would take days. You can apply for a free demo account.

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