An investment portfolio is a collection of assets that you own, such as bonds, real estate, stocks, gold, etc. It is important to have a balanced investment portfolio to reach your financial goals in the most effective and stress-free manner possible. You can decide how you want to build your investment portfolio by balancing it and knowing what to include, and how much of it to hold.
Building an investment portfolio is not an easy task and can be tough, especially for beginners, but hopefully the steps discussed in this article will make your journey easier.
Step 1: Determine your financial goals
The first step to investment is knowing the ‘why’ of your investment. So, decide what your short-term, medium-term and long-term goals are, and what you want out of your investments. It could be saving for retirement or for education, for buying a house or a car, or just having a comforting corpus for any future exigencies. Broadly figuring out what all you need to invest for will help you choose investment products that suit your needs and goals.
Step 2: Assess your risk tolerance
After you know what your goal is, you need to assess how much risk you are willing to take. For example, if your goal is to invest for retirement savings, then you might decide where to invest based on returns you want. However, the products that yield high returns may seem too risky for you. You may want something that is safe, and therefore go for more conservative assets like bonds. However, if your risk tolerance is higher, you might prefer growth- oriented assets like stocks or private equity.
Step 3: Choose the right investment vehicles
Based on your goal and risk tolerance, you need to choose the right investment vehicles that
align with your long-term goals and helps you succeed financially. Basic research would help you get a direction on which vehicles give you comfort. You may want to invest in stocks, but prefer to use mutual funds since they are managed by professionals. You may like the predictability of alternate investments, but prefer to use a curated offering (like us!) to remove the hassle of due diligence and sourcing.
Step 4: Diversify your portfolio
After you decide where to invest, it is not prudent to invest in just one place. Diversify your portfolio by investing in different assets as it would reduce risk and volatility. Even if you suffer a loss in one investment, the other ones can do well and help balance out the laggards. Investing in different assets like bonds, mutual funds, alternative assets, stocks etc. would also help you capture the upside potential from each segment.
Step 5: Rebalance your portfolio regularly
After making investments in different assets, you need to keep a track of them and rebalance it regularly. If some assets have grown disproportionately in value, you could sell them and buy the ones that are available at better prices in the prevailing market. This would help prevent your portfolio becoming lopsided and overly concentrated in a few avenues.
Step 6: Monitor your portfolio
Once you have built your portfolio, it is important to monitor it regularly. Tracking your progress will ensure that your investment portfolio still aligns with your long-term goals. It gives you advance warning for sectors at high risk or with unnecessary volatility, and gives you sufficient time to make changes to your portfolio.
Some of the assets that should be explored for inclusion in your portfolio are:
Alternative assets – These are products like unlisted bonds, which often have an extremely lucrative risk-reward balance. The products listed on our site are all secured, guaranteed by the issuer, and give returns of 15% IRR or more.
Stocks - Stocks represent ownership shares in a public company. When you buy a stock, you have bought a part of a company. The returns are influenced by the company’s performance and stock prices. They can generate high returns, but are considered to be very risky.
Bonds - Bonds are debt securities issued by municipalities, corporations, or government. When you buy a bond, you are lending money to the issuer for a specific time and you get interest on that amount. Bonds are considered safer as they provide regular interest payments and guarantees of the issuer.
Mutual Funds - Mutual funds pool money from multiple investors to invest in a diversified portfolio, but is handled by professional fund managers and they may charge extra fees for this. They invest predominantly in stocks and bonds, and give you a diversified holding of securities.
Exchange-traded funds (ETFs) - They are like Mutual funds but they trade on stock exchanges like individual stocks. The added speed of purchase and sale is attractive to many investors, but the liquidity should be checked before investing.
Real Estate Investment Trusts - REITs are companies that own or finance real estate properties which are leased out to tenants. And investors can buy shares of REITs, allowing them to earn a portion of rental income, without owning the property.
There are many other assets like gold, hedge funds, private equity, etc. which can also be explored.
You might not get it all correct from the start, but to build a good investment portfolio you need to regularly track your growth and make change whenever needed. By following these steps, you can create a portfolio that is right for you and helps you reach your financial goals. To have a successful investment portfolio, you should start early, invest regularly and not try to predict the market. Patience and focus on your long-term goals is of extreme importance. Building an investment portfolio is not easy, and there are also many professionals and resources available to make your journey fun and rewarding.
Happy Investing!
