Building Your Portfolio

Building and maintaining your portfolio doesn’t require fanfare or drama, nor does it have to be intimidating. With these few steps build a portfolio that suits your financial needs and solidifies your decision to make the investment.

Step 1: Create goals for yourself so you can allocate your assets.

When you make the decision to invest and create a portfolio, it is important to know why you’re investing. The “why” carries the timeframe of your investment, which greatly impacts how you allocate your assets. The longer the timeframe for your investments, the more aggressive your portfolio can be. Do your goals and timeline allow for moderate to significant amounts of risk? How much money do you need to have saved? How long will that money need to last? The first, and likely most important step of building your portfolio is to answer the aforementioned questions and create goals for your portfolio and investments. Without goals, there is no guidance for allocating your assets.

Now, allocating your assets is an important part two after you’ve set goals for yourself. The goals you’ve set will determine how you allocate your assets for your portfolio. When allocating your assets, there are three main categories to consider. The first of the categories is stocks. Stocks are higher risk options but allow for greater gain and the potential to beat inflation prices. Stocks typically require a longer timeframe to be worth their level of risk. The next category is bonds. Bonds generate income and come with less risk than stocks. The final of the three categories is cash. Cash investments allow for short term needs and also provides more stability as it comes with the least amount of risk for potential loss. Depending on how aggressive or conservative your portfolio, your investments will vary among these three categories. Unlike other methods of investing, your portfolio will require you to review it regularly. You cannot be satisfied and leave it alone or you run the risk of ending up with a different asset allocation or potentially a very costly portfolio.

Step 2: Build a portfolio that meets your needs. 

Step two is the big one. It’s time to actually build your portfolio. Now that you have your goals and know how you want to allocate your assets, it’s time to do it. Take a look at your goals, how you want to allocate your funds, and select where you want to invest.

Be true to your goals and the amount of risk you can afford to take with your asset allocations. The potential reward for stocks is tempting, but if you don’t have the time to invest in such a volatile market, beware of the greater potential for loss. When investing in the market, (or anywhere else for that matter) be wary of fads. Often fads have already returned their highest profits by the time they’re known for being a popular entity. Take the time to carefully review, or have a financial advisor review what stocks, bonds, and cash investments you’re bringing into your portfolio.

Although there are no guarantees, doing your research of the market, the company, and history of the stock can go a long way in decreasing the risk of a potential loss. Investing in commodities, especially as interest rates are increasing, can also reduce the potential risks of your portfolio as a whole. Above all else, stay true to your goals and timeline when building your portfolio. If you take the time to do the research for what you’re investing in, all that’s left to do is make sure your picks match your established plan to optimize your portfolio.

Step 3: Be consistent & follow the plan.

The final step to building your portfolio is a simple one: follow the plan you’ve made. Check on your portfolio to make sure that everything is how you want it to be. Be aware of how volatile the market can be, don’t cut something lose just because it isn’t doing well at that moment. Keep the big picture in mind and be sure to try to ride the market rollercoaster with your higher risk investments. Ride out the market swings and stick to your plan. As long as your financial situation hasn’t changed, neither will your plan.

Being clear about your goals and options while maintaining a consistent path of getting there is an essential role of the process. Never hesitate to seek out a financial advisor to review your portfolio annually, or to even build your portfolio are common routes to take. It is difficult to balance building your present while planning for your future. When it comes to your retirement, a portfolio that suits your financial needs is a sound investment.