Have you ever read about investing and come across the term “portfolio”? This concept can be difficult to understand in the financial world. What is an investment portfolio? And is it possible to learn how to make the right investment portfolio for you? In this article, we will answer all of your questions.
What is an investment portfolio?
All of your investments, including stocks, bonds, cash, exchange-traded funds (ETFs), mutual funds, real estate, and anything else you decided to buy are together referred to as your portfolio.
Learning how to build an investment portfolio can help you reach your personal goals by assessing your risk tolerance and setting your financial goals. Your “portfolio” is a unique expression of who you are and where you want to put your money, so the investments you choose should reflect that. Plus, your portfolio is supposed to be dynamic and certainly will change throughout your investing life as your circumstances and priorities change.
In addition to your goals and level of risk tolerance, there are factors that will assist you in choosing what to put in your investment portfolio. Such as diversification when creating an investment portfolio. By diversifying your portfolio, we mean buying multiple types of investments so that your portfolio’s performance is not tied to one specific category, industry, or company.
What is useful in diversifying your investment portfolio?
Diversification can help minimize market losses and increase your portfolio’s profits. Yet diversifying your investment portfolio does not guarantee that you will see a positive return, but it can reduce your risks by investing in several areas.
For example, you have $7000 invested in stocks and $3000 in bonds. In this case, your total portfolio of $10,000 has a 70/30 savings allocation, because you have 70% in stocks and 30% in bonds.
This is more versatile than investing your entire $10,000 in stocks. You can diversify even more by distributing your money to different investments. For example, you can put 50% in stocks, 30% in bonds, and 20% in ETFs.
A more diversified portfolio is less vulnerable to risks and fluctuations, because drops in one type of investment can be offset by more stable performance in other types. Taking risks is inevitable when investing, and portfolio diversification is one way to help you mitigate it.
How to build an investment portfolio?
Investment portfolios are dynamic not static. For example, a young investor who is starting to save for retirement might invest their portfolio in stocks. Although stocks have more volatile returns than bonds, younger investors have enough time to withstand market fluctuations and make a great profit. In contrast, someone closer to retirement age may want to distribute their savings more toward less volatile bonds.
There is no specific approach to build your portfolio, as your plan of diversifying your investment portfolio will change over time based on your needs. Here are several tips to get you started:
- Consider and be aware of the risks you are taking.
- Set your short and long-term goals.
- How long do you plan to keep your money invested?
Finally, you can count on Siolla to create an investment portfolio that suits your financial goals in the future.