The Complete Guide to Building an Effective Investment Portfolio
With investing, you have little control over market trends. In fact, you can’t be 100% certain about anything. However, even though there’s nothing you can do about the volatility involved with investing, you do have power over your investment portfolio!
Building an investment portfolio will undoubtedly seem intimidating and overwhelming at first, with all of the jargon and complexities you have to understand. But, as long as you follow the proper steps, you can prepare your investment portfolio and start earning returns!
Here are some tips to remember when building your portfolio:
Assess the Level of Risk You’re Willing to Take
Although there are ways to help you make sound financial decisions, no investment is free from risk. If there’s anything the global pandemic has brought to light, it’s that there’s a certain degree of uncertainty that may or may not lead to possible financial loss.
Investing is for the risk-takers—the more risk you take, the higher the potential returns you can expect. Before you make any investment decisions, make sure to first assess your risk levels so that you can select investments that suit your goals and timeline and are ideal for your portfolio.
Here are some of the main factors that may impact your risk appetite:
Ability to Take Risk
This refers to your capacity to take risks. Your income, current loans, other liabilities, and age significantly influence your risk appetite. Younger individuals with a higher income and few liabilities are perhaps the ideal people to take higher risks.
Need to Take Risk
The need to take risks will depend on one’s financial goals and the rate of return needed to achieve them. For example, if you aim to make a major home renovation in a few years, you may need to take a higher risk for higher returns on your investment.
Willingness to Take Risk
Unlike the other two factors, willingness is behavioural, so it can’t be quantifiable, nor can anyone else dictate how much you’re willing to risk. Make sure to carefully consider how comfortable you are with taking risks before investing.
Time Horizon
The time horizon or investment timeframe refers to how long you’re planning to invest. Your time horizon will help provide a framework for your investments and determine how much time you have to realise your investment goals. The longer your investment time frame is, the more aggressive you can typically be with your investments.
Ask For Professional Help
Most people don’t realise that building your investment portfolio is made easier with the help of experts. When it comes to investing, you always have the option to take the DIY route, but building an investment portfolio from scratch isn’t something anyone can do alone.
If you’re looking for more comprehensive portfolio management services, then it’s best to work with a wealth adviser.
Instead of researching and second-guessing yourself, a wealth adviser will provide expert financial advice, ensuring that you make the best investment decisions geared for your risk appetite.
Determine the Best Asset Location
Asset location refers to the way you split up your portfolio among different types of assets. To allocate your assets wisely, it’s typically ideal to consider an entire spectrum of investments and diversify your portfolio across multiple investment options. You can look at model portfolios to get a framework for how you may want to allocate your assets.
Building an investment portfolio is far from easy but if you follow our tips and consult a wealth adviser, you too can get started on your journey to smart investing.
Are you looking to build your investment portfolio but don’t know how to start? Then, let our wealth advisers at Central Coast Financial Planning Group help you! We offer portfolio management services to guide you in developing a wealth creation plan, building a more financially secure future. Book a meeting today!
Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
