As you may have guessed by now, a killer investment portfolio requires a lot of preparation and planning. Picking the right stocks now can minimize problems later. It’s also the best way to ensure that you let your capital grow to its greatest potential.
Begin by asking yourself three simple questions. First, do you think long-term investing is better than short-term investing? Second, do you think that marketing headlines have diminishing impact? Third, do you think that stocks can outperform bonds in the long run? If you answered yes to all three, then you’re ready to work on your portfolio.
Here are five important things to remember when building the best investment portfolio your money can buy.
(1) Figure out what you want to achieve.
Setting goals is a good way to help you identify what sort of stocks and assets will work best in your portfolio. If you’re looking to build a nest egg post-retirement, then it’s a good idea to invest in low risk stocks and real estate. These are less volatile and the earnings are steady. On the other hand, if you’re looking to earn a significant amount quickly, look into riskier stocks that may yield high returns in a short amount of time.
(2) Decide on the time factor.
Time is always of the essence. If you’re looking towards long-term, you can take on a few more volatile assets. Time can smooth out the risks because you don’t need the capital back immediately. If you’re saving up for something a lot more immediate, though, you may need to avoid risky investments. You don’t want to gamble the money you have and lose it all on a risky bet.
(3) Figure out your risk comfort zone.
Not everyone has the same level of risk tolerance. Some people can handle high risk investments without batting an eye, but others will spend nights sleepless and anxious. You need to be honest with yourself about this. Pretending that you’re fine with high risk investments can backfire. Since the goal is passive income, it’s important to create a portfolio that grows without increasing your anxiety.
(4) Diversify your asset types.
Don’t just rely on stocks and bonds. Diversifying your assets counters the anxiety-producing effects of volatility. You should also consider alternative assets like real estate, direct property 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. Otherwise, you have to consider more liquid assets like equities. This is so you can pull out your investment quickly if necessary. Lack of liquidity means you have to make a commitment. Make sure you think this through before deciding on the assets for your portfolio.
(6) Take note of trends, but have conviction.
Many trends appear all the time. Though you have to keep track of these trends so you can update your portfolio from time to time, it’s important that you don’t jump into any bandwagon immediately. Evaluate whatever asset or stock is hottest at the moment, but don’t invest in it unless you have done reliable and proper research. Portfolio maintenance should be pretty minimal after the initial setup, but you will need to “rebalance” your allocations every once in a while.
(7) Seek expert advice.
A financial expert can help you get through the most difficult decisions. Ask for financial advice in evaluating the many different investment instruments to choose from. Just remember to always be upfront with your personal opinion and concerns. A good advisor should be able to take your concerns into consideration and help you build the best portfolio possible.
by Kris Alban