3 Tips to Build An Investment Portfolio
Nov 23, 2022
Building an investment portfolio could seem like a tall task, however there are things you can do to make it a breeze.
First Tip: Know Your Risk Tolerance
Your risk tolerance is defined by your willingness to accept investment losses in return for the possibility of earning higher investment returns. Factors that can impact your risk tolerance are not only how much time you have to reach your goals (such as retirement), but can you mentally deal with knowing that markets rise and fall and can whipsaw back and forth in a volatile fashion? If you have a high risk tolerance, you may want to consider investing a higher percentage of your portfolio in stocks, which have historically outperformed more conservative investments, such as bonds. If your risk tolerance is conservative, you could invest a higher percentage of your portfolio in bonds. Generally, the more time you have to reach your investment goal, the more risk that you can afford to take.
Second Tip: Know Your Time Commitment and Skillset
How much time do you want to spend researching and selecting investments for your portfolio? If you want to be really hands-on and want to put the time into researching and selecting investments, you can likely choose to pick individual stocks and bonds, one by one. If you don’t have the time to dedicate putting in the research to your investment portfolio and / or, you don’t have the knowledge to do it yourself, you could choose to invest in a stock or bond index fund instead. An index fund tries to match the performance of a certain market index, such as the S&P 500, so that if the stock market rises by 8% in a year, your investment portfolio rises by 8% in a year. Conversely, if the stock market falls 8% in a year, your investment portfolio falls by 8%. Choosing a stock or bond index fund is a more passive way to invest that will provide you market exposure without you needing to select individual investments.
Third Tip: Know When to Reach Out For Help
At times investing can feel overwhelming. You can choose to handle your investment portfolio yourself by knowing your risk tolerance and skillset and choosing the right mix of investments. But if you find yourself not being able to or wanting to handle investing your money on your own, you can hire a professional to do it. (Typically you’ll need an account balance of at least $25,000). A professional investment manager can invest your portfolio on your behalf so that you don’t have to deal with the emotional roller-coaster that you may feel if doing it yourself isn’t your thing. Investment managers usually charge anywhere from 1-2% of your account balance annually, but in some cases it may be worth it if you’d enjoy having someone to help guide you through market shifts and to make sure you’re reaching your investment goals.
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