HOW TO BUILD AN INVESTMENT PORTFOLIO
Decide how much help you want. If you want more than just investment management, an online financial planning service or a financial advisor can help you build your portfolio and map out a comprehensive financial plan.
Choose an account that works towards your goals. There are several different types of investment accounts. Some, like IRAs, are meant for retirement and offer tax advantages for the money you invest.
Choose your investments based on your risk tolerance. After opening an investment account, you’ll need to fill your portfolio with the actual assets you want to invest in: stocks, bonds, mutual funds, etc.
Determine the best allocation for you. The way you split up your portfolio among different types of assets is called your asset allocation, and it’s highly dependent on your risk tolerance.
Rebalance your investment portfolio as needed. Some advisors recommend rebalancing at set intervals, such as every six or 12 months, or when the allocation of one of your asset classes shifts by more than a predetermined percentage.
COMMON TYPES OF PORTFOLIO
Conservative Portfolio. This type is also called a defensive portfolio or a capital preservation portfolio. They keep risk low to preserve your investment dollars.
Aggressive Portfolio. Also known as a capital appreciation portfolio. They are appropriate for younger or risk-tolerant investors who want to grow assets quickly and don’t mind taking risks.
Income Portfolio. This type of portfolio is focused on delivering reliable income, from assets like municipal bonds and dividend-paying stocks.
Socially-responsible Portfolio. ESG and SRI portfolios allow investors to do well financially by doing good for society with their investments.
COMMON COMPONENTS OF A PORTFOLIO
Stocks are the most common component of an investment portfolio. They refer to a portion or share of a company.
It means that the owner of the stocks is a part owner of the company. The size of the ownership stake depends on the number of shares he owns.
Stocks are a source of income because as a company makes profits, it shares a portion of the profits through dividends to its stockholders.
A bond comes with a maturity date, which means the date the principal amount used to buy the bond is to be returned with interest.
Compared to stocks, bonds don’t pose as much risk, but offer lower potential rewards.
Alternative investments can also be included in an investment portfolio.
They may be assets whose value can grow and multiply, such as gold, oil, and real estate.
Alternative investments are commonly less widely traded than traditional investments such as stocks and bonds.