How to build a killer investment portfolio
As you may have guessed by now, a great investment portfolio requires a lot of preparation and planning. Choosing the right actions now can minimize problems later. It is also the best way to ensure that you let your capital grow to its full potential.
Start by asking yourself three simple questions. First, do you think investing for the long term is better than investing for the short term? Second, do you think marketing headlines have diminishing impact? Third, do you think stocks can outperform bonds in the long run? If you answered yes to all three, then you are ready to work on your portfolio.
Here are five important things to remember when building the best investment portfolio money can buy.
(1) Find out what you want to achieve.
Setting goals is a good way to help you identify what types of stocks and assets will work best in your portfolio. If you’re looking to build a nest egg after retirement, then it’s a good idea to invest in low-risk stocks and real estate. These are less volatile and the gains are constant. On the other hand, if you are looking to earn a significant amount quickly, look for riskier stocks that can generate high returns in a short period of time.
(2) Decide on the time factor.
Time is always of the essence. If you are looking to the long term, you can buy some more volatile assets. Time can smooth out the risks because you don’t need to recover the principal immediately. However, if you’re saving for something much more immediate, you may want to avoid risky investments. You don’t want to play the money you have and lose it all on one risky bet.
(3) Calculate your risk comfort zone.
Not everyone has the same level of risk tolerance. Some people can handle high-risk investments without batting an eyelid, but others will spend sleepless, anxious nights. You have to be honest with yourself about this. Pretending you’re okay with high-risk investments can backfire. Since the goal is passive income, it’s important to build a portfolio that will grow without adding to your anxiety.
(4) Diversify your asset types.
Don’t just rely on stocks and bonds. Diversifying your assets counteracts the anxiety-producing effects of volatility. You should also consider alternative assets such as real estate, direct ownership, private equity, and commodities.
(5) Consider your liquidity needs.
If you won’t need the capital anytime soon, feel free to invest in tangible assets like real estate. If not, you should consider more liquid assets like stocks. This is so that you can withdraw your investment quickly if necessary. Lack of liquidity means you have to make a commitment. Be sure to think it through before deciding on the assets in your portfolio.
(6) Take note of the trends, but have conviction.
Many trends appear all the time. Although you should keep track of these trends so that you can update your portfolio from time to time, it’s important that you don’t jump on any bandwagon right away. Evaluate any asset or stock that is hot right now, but do not invest in it unless you have done proper and reliable research. Portfolio maintenance should be minimal after initial setup, but you will need to “rebalance” your allocations from time to time.
(7) Seek expert advice.
A financial expert can help you get through the toughest decisions. Ask for financial advice to evaluate the different investment instruments to choose from. Just remember to always be honest with your opinion and personal concerns. A good advisor should be able to take your concerns into account and help you create the best possible portfolio.
