You can learn a lot about investing by setting up what I call an “investment deathmatch” in your portfolio. In such a setup, your hand-picked investments compete with each other to produce the best return and rack up the biggest balance.
An investment deathmatch starts off by investing equal amounts of money in several investment funds at the same time. This makes it easy to monitor how your investments are performing relative to each other simply by glancing at the fund balances.
Some benefits of this “investment deathmatch” approach for your portfolio are:
You get the experience of picking out multiple investments.
You learn from seeing how different investments perform over time relative to each other.
Your portfolio risk is reduced due to diversification.
Based on your investment performance results, you can invest more money in your best performing funds.
Here’s how to set up your own investment deathmatch.
1. Select categories of funds
While you could pick funds from the same investment category to compete in your deathmatch, there is more to be learned by selecting funds from a variety of categories. Plus, you will build a more diversified portfolio if you choose a variety of funds, reducing your risk in case one investment sector falters.
Here are some ideas for fund categories to choose from:
S&P 500 index fund: A good “pace car” to see how your other investments perform relative to large-cap equities in the stock market.
Growth fund: Will a growth fund provide better returns than the overall market?
Mid-cap fund: Mid-sized businesses have established products and customer bases and lots of room to grow.
Just-for-fun: Pick an international fund, real estate investment trust (REIT), gold fund, or whatever investment you think is interesting and could perform well.
2. Pick your funds
Now that you have outlined your investment categories, it’s time to do your homework and pick your favorite fund in each category. Some of the key criteria to consider when selecting funds for your investment deathmatch are:
Investment objective: Do you want an aggressive growth fund that takes higher risks to seek higher returns, or would…
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