How to Build an Investment Portfolio

How to Build an Investment Portfolio

Ok now the fun part of actually building your investment portfolio! Here are 3 steps you can take to create your investment portfolio.

1.    Set your goals

a.    What are you looking to achieve with this money?

o   Is this your retirement money that you have 30+ years until you can use it?

o   Or are you looking to buy a house or start a business in the next few years?

b.    How long do you want to invest this money?

o   Will you be able to invest the money for at least 5, 10, 20 years or will you need the money before that? Generally, if you don’t need the money for at least 5 to 10 years, you can potentially take more risk since you’ll be able to recoup the money if an investment is performing as well as you thought.

c.    How much risk are you willing to take?

o   Are you someone who won’t be able to sleep at night if your money loses a little value? If so, you probably don’t want to invest in anything too risky.

2.    Decide what investment vehicles you want to invest in.

a.    Do you want to invest in specific companies? If so, you can create a portfolio of hand-picked stocks.

b.    Are you looking to get exposure to certain sectors, geographies, or indexes? If so, then investing in mutual funds and/or ETFs (exchange-traded funds) would be a good option.

c.    It’s a good idea to build a diversified portfolio, which just means you are investing in different sectors, industries, geographies, etc so your portfolio can weather the ups and downs of the market. Remember - when the general market is down, not all companies & sectors are impacted in the same way.

d.    Build a portfolio in which you have a long-term strategy but do regular checkups on your portfolio so you can act if an investment is not viable any longer.

e.    Pick companies, sectors & industries you understand and feel comfortable with.

3.    Decide how much money you want to invest in total and how much you want to put into each investment.

a.    Are you investing all of your money at one time or do you want to phase into it? If you are a new investor, I would recommend investing in phases. Here’s an example of what this means - let’s say you have $15,000 you want to invest. You may invest one third of that today, so $5,000 and then in a few weeks, you would invest another $5,000 and then a few weeks from then, the rest. This will help you feel comfortable with seeing how those investments are doing and will also allow you to make decisions on how much more you want to invest in those investments.

b.    To continue with our example of $15,000 - you want to decide how much you want to invest in each investment you are considering. If you have 5 stocks and ETFs you are wanting to invest in, you don’t need to invest in each of those in equal proportion. Maybe 2 of them are riskier and you want to be a little more conservation on those. You can make the decision that you’ll only invest 5-10% in each of those instead.

c.    Sometimes it’s better not to over diversify. I know this goes against the common wisdom – but focus on a few areas and make it easy for you to track and keep an eye on your investments.

Remember the stock markets are sensitive - to company’s earnings reports, political news, CEOs saying/doing stuff that gets reported in the news so continue to monitor the financial news so you know the latest with your investments!

What is Asset Allocation & Why Is It Important

What is Asset Allocation & Why Is It Important

Investing Strategies

Investing Strategies

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