You don’t have to be a financial guru to succeed in building your investment portfolio. But, for consistent growth of your investments, you need basic knowledge on investing. The moment you start the journey of investing, the more ideas you get for improvement. Here are the steps you need to build up your investment portfolio.
1. Do Your Research.
To create a high-performing investment portfolio, you need to have confidence in the companies that you invest in. Look at the company’s performance, how are the financial documents? Is it increasing revenue and profit?
Building an investment portfolio requires time to contemplate the opportunities. If this sounds like a chore, avoid do it yourself route by seeking a professional finance manager rest you fall into an investment scam.
Professional finance managers takes your financial goals and risk tolerance into consideration as they build your investment portfolio for you.
2. Assess Your Risk Tolerance.
Your risk tolerance is one of the most crucial considerations in building your investment portfolio.
In investment, there is an element of risk involved. You can either lose your investment or earn a higher return out of your investment. The more risk you take, the higher the possibility of more returns.
The question is, are you able to accept financial losses in pursuit of higher returns?
Your risk tolerance is determined by your financial goals, willingness to take risks, and investment time horizon. The longer investment time, the higher the ability to take risks.
3. Diversify Your Investments.
Diversify your investments to maximize your returns and reduce risks. By investing in a broad range of investments, you reduce exposure to any single asset significantly.
There are various categories of investments such as stocks, bonds, mutual funds, real estate, cash, and cash equivalents.
The idea behind diversification is that if one investment is affected by the market and makes losses, the other investments will hopefully make up for the losses.
4. Allocate Your Assets.
Assets allocation means dividing the money in your investment portfolio among different assets such as stocks, bonds, and cash.
The allocation depends on factors like:
- Your risk tolerance
- Your investment timeline—how long you have to invest
- Your returns expectations
For example, a conservative portfolio is ideal for someone with low-risk tolerance and a short time to invest, unlike an aggressive portfolio with a high-risk tolerance and long time horizon.
5. Track Investment Performance
You must track the performance of your investments to ensure you achieve your financial objectives.
Keep assessing the performance of your investments by looking at the monthly statement you receive from your custodian. Look at the annualized percent of return, from the report did you gain money or lose money?
If the portfolio performance is lower than expected, then identify the reason behind the underperformance before you rush into selling.
The Bottom Line
Regardless of your investing knowledge, ensure you conduct the necessary research and that your investment portfolio conforms to your financial goals and risk tolerance.
Further, consistent and disciplined investing will ensure you remain on course to achieving your financial goals. By investing consistently, you will build your investment portfolio successfully.