As you may have guessed, a great investment portfolio requires a lot of preparation and planning. Choosing the right stocks now can minimize problems later. It is also the best way to ensure that your capital grows to its full potential.
Start by asking yourself three simple questions. First, do you think investing for the long term is better than investing for the short term? Second, do you think marketing headlines are getting less and less of an impact? Third, do you think stocks can outperform bonds in the long run? If you answered yes at three, then you are ready to work on your portfolio.
Here are five important things to remember when creating the best investment portfolio your money can buy.
(1) Find out what you want to achieve.
Setting goals is a good way to help you identify what types of stocks and assets will work best in your portfolio. If you are looking to build an egg nest after retirement, then investing in low-risk stocks and real estate is a good idea. These are less volatile and earnings are stable. On the other hand, if you are looking to earn a significant amount quickly, look for riskier stocks that can generate high returns in a short period of time.
(2) Decide on the time factor.
Time is always of the essence. If you are looking to the long term, you can take on some more volatile assets. Time can soften risks because you don’t need to get your capital back right away. However, if you are saving for something much more immediate, 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) Calculate your risk comfort zone.
Not everyone has the same level of tolerance for risk. Some people can handle high-risk investments without batting an eyelid, but others will have sleepless and anxious nights. You have to be honest with yourself about this. Pretending you’re okay with high-risk investments can backfire. Since the goal is passive income, it is important to create a portfolio that grows without increasing your anxiety.
(4) Diversify your types of assets.
Don’t just rely on stocks and bonds. Diversifying your assets counteracts the anxiety-producing effects of volatility. You should also consider alternative assets such as real estate, direct 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 should consider more liquid assets like stocks. This is so you can get your investment out quickly if necessary. Lack of liquidity means you have to compromise. Be sure to think about this before deciding on the assets in your portfolio.
(6) Take note of trends, but have conviction.
Many trends appear all the time. Although you should keep track of these trends so that you can update your portfolio from time to time, it is important that you do not jump on any train immediately. Evaluate whatever asset or stock is most in trend right now, but don’t invest in it unless you’ve done reliable and proper research. Portfolio maintenance should be minimal after initial setup, but you will need to “rebalance” your allocations from time to time.
(7) Seek the advice of an expert.
A financial expert can help you get through the toughest decisions. Seek financial advice to evaluate the different investment instruments you can choose from. Just remember to always be honest with your opinion and personal concerns. A good advisor should be able to take your concerns into consideration and help you build the best possible portfolio.