Portfolio management involves risk management, but it might also take a little house cleaning to stay on track.

Part of this process involves mentally preparing yourself for great profits. Having the right mindset can begin with a few steps. The following 10 actions are designed to clear out the dead weight in your portfolio, your office and your mind to clear the way for better returns.

Tutorial: Top Stock-Picking Strategies

1. Have a plan for profit.
Do this test: All your stops are hit tomorrow. What cash is left? Figure out how much your capital will be compromised. If it is uncomfortable, change something. Having a plan for profit and preparing for good outcomes means you have to always limit loss of capital. Your bottom line is your critical success factor. There is no other measure. (To learn more, read The Importance Of A Profit/Loss Plan.)

2. Get rid of moldy positions.
You are known by the positions you keep, so prepare to be profitable!
Anything that isn't making money, be gone! Investing is the use of money to make more money. Positions that do not make money are a poor use of money.

3. Choose only good positions and avoid the bad ones.
There's an idea! But what does it mean? Make sure that price has direction before you lay your money down. Higher pivot highs and higher pivot lows show an upward trend of price. Trading with price direction makes money. Do what you know and know what you are doing at all times.
Money management means paying attention to risk and reward. (To learn more, read Price Pivots Circle Big Profits.)

4. Review and organize.
Make a certain time, whether once a week or once a month, to review all of your finances. Keep paperwork organized. If your old binder is falling apart, maybe it is time to get a filing cabinet. Whatever it takes, get your paperwork and workspace in order. Our brains can only process so much information, so delete what you are not using - like the 500 watch-lists and articles you thought you might get to next week. What we pay attention to is what succeeds. (For more on this, read Get Organized With An Investment Analysis Form.)

5. Target your information source.
There is so much information available now that it is necessary to limit and direct your attention. Know what you are investing for, whether it is the dividend or capital growth, and then apply pertinent information. "Which book is the best book to read to be a trader?" There are hundreds of books and while all have value, not all tell us what we are trying to learn. When you have a goal, you can find a source that gives you the information you need. (For some of Investopedia's top picks, see Books Worth Investing In, Ten Books Every Investor Should Read and Investing Books It Pays To Read.)

6. Have a budget.
Plan carefully what money will be invested or used for trading capital. What does that mean? Don't trade with the mortgage payment. Don't trade with your savings. The money over and above your immediate needs and emergency savings is money you can put toward investing. Be sure that you trade with money that can be spared. You need to make it, save it and then learn how to grow it. Ideally, you should learn before you commit money. The game is won in the practice field, so practice trading and have a written plan of what you are going to do. (Read Get Your Budget In Fighting Shape and Six Months To A Better Budget to learn more on this topic.)

7. Have a profit vocabulary.

  • Capital - Cash that is left over after day-to-day needs are met. Never invest with money you need to pay bills. Capital is the part of your savings that can be risked in an investment. The word "risk" is important here, because no investment is guaranteed. Build capital with a regular savings program. Building wealth is not just about making big profits. It is also about making a big commitment to saving part of your hard-earned money so it can work a second job for you.
  • Capital Asset - Tangible property is considered a capital asset. In financial economics, capital assets include stocks or bonds.
  • Capital Gain - The increase in the value of a capital asset that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. A capital loss is incurred when there is a decrease in the asset value compared to the purchase price.
  • Profit - 1) Verb: The reason we risk money. 2) Noun: The part of a gain that we keep.
  • Responsibility- What you take for everything you do as a trader.

8. Re-evaluate your strategies.
Are you buying stocks when the overall market is moving down? Look at what the overall market is doing. Regular practice improves results. Strategies that are effective in the market change from time to time, just as market cycles change. Price has cycles of expansion and contraction and a professional trader takes advantage of what the market is doing to profit. When you're experiencing a missing streak, change something. The market will not wait, so it's better to find out on paper first that your plan is not right.

9. Go over your financial and trading plan and be sure your positions fit the plan
Do you have money allocated to savings? Are you watching the results of your IRA? Are you taking profits when there is a gain?
Your position may have a gain, but it is not a profit until you bank it. Each goal may have a different time frame; make a clean sweep by coordinating your entire financial picture. (Learn to set your own rules in Ten Steps To Building A Winning Trading Plan.)

10. Be the
chief financial officer of your wealth portfolio.
If that sounds daunting, it isn't. By signing checks, paying bills and making financial plans, you are doing it anyway - now all you have to do is learn the right way! Don't plan to trade, plan to profit.

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  2. Mutual Funds & ETFs

    Mutual Funds Are Not FDIC Insured: Here Is Why

    Find out why mutual funds are not insured by the FDIC, including why the FDIC was created and how to minimize your risk with educated mutual fund investments.
  3. Professionals

    How to Sell Mutual Funds to Your Clients

    Learn about the various talking points you should cover when discussing mutual funds with clients and how explaining their benefits can help you close the sale.
  4. Professionals

    Fund and ETF Strategies for Volatile Markets

    Looking for short-term fixes in reaction to market volatility? Here are a few strategies — and their downsides.
  5. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Personal Finance

    How To Choose A Financial Advisor

    Many advisors display similar skillsets that can make distinguishing between them difficult. The following guidelines can help you better understand their qualifications and services.
  8. Investing Basics

    Diversifying Your Portfolio: 5 Easy Steps

    You can never be sure of what the market will do at any given moment. That’s why a well-diversified portfolio is so important.
  9. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  10. Retirement

    Should Balanced Funds Be Part Of Your Portfolio?

    Find out why you should include balanced funds in your portfolio, including the importance of customizability, diversification and professional management.
  1. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  2. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  3. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  4. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>
  5. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
  6. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!