How To Build An Investment Portfolio

How To Build An Investment Portfolio

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An ‘investment portfolio’ is a collection or basket of investments. The idea of building an investment portfolio might seem daunting at first, especially for new investors, but getting started can be really easy. There are steps that you can take to simplify the process and to create a smart, efficient portfolio. In this article, we will look at why investment portfolios are important and how you can start building one.

What Is An Investment Portfolio?

An investment portfolio consists of all of your financial assets. It can include investments such as stocks, bonds, real estate, REITs (real estate investment trusts), mutual funds, ETFs (exchange traded funds), and precious metals. The easiest way to think of an investment portfolio is to think of it as the sum of all of your assets under one roof.

If you would like to take a hands-off approach to your investment portfolio, you can consider working with a portfolio and asset management firm that specializes in this area and that can manage your assets for you. For example, you can book a free consultation with one of our specialists to find out how to optimize your income and build a successful portfolio.

One of the main challenges associated with building an investment portfolio is budgeting. It requires you to balance your current financial obligations, such as paying your bills, with your investment goals. It also requires you to set aside enough money each month to be able to invest and grow your wealth.

Smart investing takes into account your current expenses as well as the short, medium, and long-term goals that you have set out to achieve. The tricky part lies in striking a balance between your risk tolerance and the growth opportunities that lay ahead.

What To Consider When Investing

When building your investment portfolio, one of the most important things to consider is your risk tolerance. This is something that is different for each individual and that can also vary over time. Your risk tolerance may vary based on your age, previous results, and income level. For instance, the closer we get to retirement, the less willing we generally are to take larger risks and vice versa. Going back to the risk tolerance, we can define it as your ability to accept potential losses, in exchange, for the high potential investment gains. In other words, risk tolerance is how well you can handle market volatility.

Choosing An Investment Horizon

The first step in building an investment portfolio is deciding on your financial goals and defining them for the short, medium and long term. When looking at your short-term goals, you should consider what you aim to achieve in the next 3 years. This can be a dream vacation or a house renovation. Your medium-term goals would be those that you want to achieve over a period of 3 to 10 years. This can be anything from paying for your kids’ education to purchasing a plot of land. Your long-term goals are those that exceed the 10-year mark. For example, this can be buying your dream house or planning for retirement.

Based on the above, you can get a clear idea of what you want to achieve and set a time frame for doing so. It is important to be as realistic as possible about the time it will take to achieve a goal. For example, you need to keep in mind the time it may take to ride out market volatility, and to take advantage of any upward movements on the markets. It is also important to avoid investing money in assets that don’t match your risk tolerance.

Deciding How Much Help You Want

Now that you know how you want to invest, it’s time to decide how much help you need with your portfolio. That means deciding how involved you want to be in choosing and managing your investments. For example, if you want to manage the research, asset selection, risk profiling, diversification and allocation, or if you prefer to take a more hands-off approach and work with an investment firm.

Deciding Which Investments Will Add Value

Here are some example of assets that you can include in your investment portfolio:

1 – Stocks

Stock investing can be compared to buying ownership within a company. Some investors choose stocks based on their predicted rise in value, while others choose stocks based on the dividends they pay, or a combination of the two. The risk of course is that those stocks may not increase in value, or may even lose some of it. To mitigate the risk, many investors consider stock investing through funds such as index funds, mutual and ETFs.

2 – Bonds

Bonds are essentially a form of loaned capital made to companies or governments. They are typically considered lower risk investments when compared to stocks, but as you may have guessed, lower risk assets generally bring lower returns. Despite that, investing in bonds can be a great way to balance out riskier assets such as stocks, cryptocurrencies, and other alternative investments.

3 – Mutual Funds

The key advantage that mutual funds have over individual stock investing is that they allow you to add instant diversification to your portfolio. Through a mutual fund, you can invest in a basket of stocks or bonds, or a mix of both. As you can imagine there is a certain degree of risk involved. However, it is less risky than in investing in individual stocks.

4 – ETFs

Most likely, by now, you have heard of Index Funds and Exchange Traded Funds (ETFs). Their purpose is to track the performance of a certain market index such as the S&P 500 , the Dow Jones, and others. The main difference between an Index Fund and an ETF, is that the latter is actively traded on an exchange, whereas an Index Fund can be only bought or sold at the end of the trading day.

5 – REITs

Real Estate Investment Trusts are another great investment option. You can use them to diversify your portfolio and to add an extra layer of protection against adverse market movements. We have covered this topic in more detail here. Basically, a REIT gives you the chance to invest money in real estate, which can be a great hedge against downturns in the stock market.

6 – Gold Investing

For many of you, building a portfolio without including this yellow precious metal is unthinkable. We also have a dedicated article about gold investing which, especially in times of uncertainty, can be a very good hedge against inflation and inflationary pressures.

Final Thoughts

With the right help, building an investment portfolio can be easy. There are a few things you need to consider, like your investment goals and your risk tolerance, but if you’re working with an experienced portfolio team then investing can be a very simple process. To find out more about investing, check out our blog. To find out more about our portfolios, book a free consultation with our team.

Risk Warning: The information in this article is presented for general information and shall be treated as a marketing communication only. This analysis is not a recommendation to sell or buy any instrument. Investing in financial instruments involves a high degree of risk and may not be suitable for all investors. Trading in financial instruments can result in both an increase and a decrease in capital.

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Risk Disclaimer: The value of investments and the income from them can go down as well as up and you may not recover the amount of your original investment. Past performance is no guarantee of future success. Seek independent financial advice if necessary.