As you assemble an investment portfolio, it is not always easy to determine where to invest and what strategy to take to reach your short-term and long-term goals. An investment portfolio can look like many things, from real estate and mortgage investing to stocks, ETFs, etc.
An investment portfolio can be very strict in the type of assets it carries or incredibly diverse. The most successful portfolio is a collection of assets that maximizes the income it generates and appreciates over time.
Here is how to build an investment portfolio.
1. Define Your Investment Portfolio Goals
Every investment portfolio and account therein should have very defined goals. For example, saving for a down payment for a home or to pay tuition for your child’s post-secondary education could be tied to a high-interest savings account.
Write out the short-term goals you want in the next 12 months, medium-term goals for the next 1-5 years, and long-term goals that will take more than five years to reach.
2. Assign Your Portfolio to an Advisor
If you don’t want to self-manage your investment portfolio, you may assign it to a robo-advisor or financial advisor to manage your assets.
An advisor can come in various forms and is a path to hands-off investing if you aren’t interested in spending too much time learning the ins and outs. This is perfect for some people, but for others, you may want more freedom over how you invest and build your portfolio.
Here are some recommended assets to invest in:
Savings accounts will generate interest based on the amount of money you put in. However, it’s a very slow burn to see your investment grow, and it is more or less a way to protect your money rather than grow it.
Stocks and equities
Stocks and equities are higher risk but offer you a better chance at growth, assessing each stock’s risk tolerance.
Exchange-traded, mutual, and index funds spread your risk across multiple stocks and securities.
Investing in mortgages as a private lender or real estate to use in various ways to build equity. Mortgage investments are a smart investment strategy but certainly not without risks.
Alternative investments exist as well, such as cryptocurrencies. However, these can carry extremely high-risk profiles.
3. Decide Your Risk Tolerance
How much you are willing to lose is a big topic among investors. The longer you have to recoup short-term losses, the more risky you can be. However, short-term goals require more conservative and careful investing by comparison.
Another way to process risk tolerance is to consider that too little risk may not yield maximum revenues from your portfolio, while too much risk will mean a greater chance of incurring losses you cannot make up for.
4. Use the Right Investment Accounts
As your goals and risk tolerance are decided, the next step is finding the investment accounts that align with your strategy. Many savings accounts with tax advantages must be carefully weighed for long-term goals.
With online brokerage accounts, you can buy and trade stocks and be your financial advisor almost without limits. There are various types of investment accounts to get educated on and compare.
6. Allocate Investment Percentages to Different Assets
After you know all the types of assets you want to invest in, define based on risk tolerance and timeline how much of your portfolio you intend to allocate to each asset.
For example, you may want to allocate 70% to stocks, 25% to investing in mortgages and real estate, and 5% to your general savings account for liquidity purposes. These numbers or assets depend on your knowledge, preferences, and investment objectives.
7. Avoid Making Impulsive Investment Decisions
For some, the hardest part of investing is not being impulsive and making investment decisions based on hearsay without diving into the actual metrics, data, and reasoning. You may hear about an ‘amazing investment opportunity’ that comes down the pike, and it can be tempting to dive in. Doing so may cost you a ton of your investment.
Alternatively, you may see your stocks plummet and the market tanking and believe you need to withdraw your investment before you lose more. There may be a reason to believe stocks and investments that are tanking will eventually reverse, and withdrawing at their low is a mistake.
All of this needs to be carefully analyzed. Making rash or impulsive decisions around your investment portfolio is one of the biggest mistakes many new and old investors make.
8. Monitor Your Investment Portfolio & Make Adjustments
You can’t set it and forget it, expecting massive returns year after year. An investment portfolio requires attention and monitoring, and occasional adjustments. Markets get volatile. Life changes happen, such as marriage or becoming a parent.
Try to commit to checking in on your portfolio once every six months at least, evaluating how each asset performs and if it’s on track with expectations.