Building an investment portfolio can be quite a challenge. After all, there is a lot that goes into determining what the right portfolio is for you. What I’ve done below is written out 4 tips that I think will help lead you to the best investment portfolio.
Come Up With Your Goals
Investing relies heavily on determining what your goals are for your money and then sticking to those goals. Consider first what you want to accomplish with the money that you’re using for investment. Once you’ve identified the goal, you can start working towards it. Here are some common goals others have used and then I’ll tell you what my personal goals are.
- Saving for a major event (wedding, vacation, sweet 16, etc)
- Investing for children’s college.
- Saving for a major purchase (car, home, yacht, etc)
- Investing for retirement
I am investing in my future and hope to eventually live off of the interest and income generated from my investments.
Determine the Time Horizon of Your Investment
Are you already 63 years old and plan to retire in 2 years? Maybe you’re 23, have a 2-year-old daughter and know that someday you will need to pay for a wedding so you can walk her down the aisle. (I have 2 of these.)
Whatever your situation is, determining how long your investment is going to work with you will help determine what type of portfolio is right for you. A general rule of thumb is that if your time horizon is long, you can take a little more risk whereas if your time horizon is short, you may want to consider a more conservative portfolio.
How Much Risk Can You Tolerate?
As I mentioned in the last tip, determining how much time you have to invest may help you determine the answer to this question. With greater risk usually comes greater reward.
This is because the market is generally very fair and rewards higher risk with higher reward and lower risk with lower reward.
What are you comfortable with? Once you can answer this, building your portfolio is that much easier.
Seek the Advice of a Professional Consultant
Did you know some people have the sole job of helping others manage their wealth and income? They are called Financial Planners and can be invaluable if you need help building a portfolio. Often, they can be expensive but if you have a lot of wealth to manage, they may save you a lot more than you are spending on their counsel.
Managing your wealth can be a very taxing endeavor. The good news is that you don’t have to rush into it. Continue learning on your own and continue following the actionable advice on this website and other websites out there designed to help you better your financial situation.
Once you hit a roadblock and think you can benefit from professional advice, look for a financial planner or consultant. Just be mindful of fees and commissions. A consultant will help you develop an investment strategy based on your goals, time horizon, and risk tolerance! Funny those are the same three things we already mentioned above.
If you are new to investing and want more information on investing, check out our recent book review on the popular title Stock Investing for Dummies. It’s a good start if you’re interested in stocks.
We’ll be reviewing books in other investment fields soon though so stay tuned! Please leave a comment below if you have any questions regarding building a portfolio and where to start.