Want To Build A Good Investment Portfolio? Here Are Some Valuable Tips

Saturday, 21 August 2021, 6:23 am
Press Release: Kalkine

Summary

• An investment portfolio refers to the basket of different assets and securities held by an investor.
• Each investor must carefully consider their financial constraints as well as future goals before formulating an investment portfolio.
• Removing volatility from the market is not an option, so re-inventing investment decisions to suit one’s risk appetite and goals is crucial.

Building an investment portfolio that best justifies your interests can sometimes be daunting, with many available options to invest your wealth in. For those new to the financial domain, an investment portfolio refers to an entire set of investment assets held by an individual.

There are various attractive opportunities for investors that can help them increase their wealth. However, investments do not follow the one-size-fits-all rule. Thus, each investor must carefully consider their financial constraints and future goals before formulating an investment portfolio.

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Investors can follow the below tips and strategies to make the portfolio building process effectively easier and create a decent portfolio:

Determine your appetite for risk

Becoming familiar with one’s risk appetite is a process that is best done before investing rather than afterwards. It is usually difficult for investors seeking risk-free investments to make ends meet as some level of risk is inevitable. The only control an investor has over the risk is how much of it can be viably taken without losing out on all his savings.

Given that, risk-averse investors always strive to go for opportunities that have minimum risk associated with them. However, a critical moving factor here is that higher risk generally comes with a higher reward. Thus, investors searching for higher returns with a sizeable portion of their savings ready to invest are likely to maintain a relatively riskier investment profile.

Investors can assess their risk tolerance by analysing factors, like current income, liabilities, upcoming goals, potential reward to take such risk, and the expected time duration for the investment to come to fruition. Before evaluating the risk tolerance, investors can take advice from experts and investment advisors over the magnitude of their leap in the investment realm.

Do away with high-interest credit card debt

While taking up a new investment, investors expose themselves to newer risks. Thus, it is a good practice to clear off pre-existing liabilities that are not long-term, such as credit card debt.

Start by ranking the various interest rates applicable to the outstanding liabilities. Priority should be given to heavier payments while clearing off credit card debt. While devising an investment strategy, investors should retain a sufficient portion of income to clear off such unpaid liabilities.

Investors can also choose to invest in securities while holding outstanding debt. This would enable them to fulfil their debt obligations from sources other than income. However, prioritising the purchase of securities and assets over debt repayment is considered a grave mistake.

Diversification is the key

Most investors are well-acquainted with the importance of having a diversified portfolio. Diversification means investing in more than one asset in a way that gains from one asset can compensate for losses in another.

This ‘simple yet tactful strategy’ has its roots set in the famous saying: “do not put all your eggs in one basket”. However, choosing a range of assets should be done mindfully. For instance, investing in different asset classes belonging to a single sector may not be the best depiction of diversification. Instead, a good option can be to invest based on the source of risk between different asset classes.

Meanwhile, picking those asset classes that have similar headwinds can be a recipe for disaster. Thus, investors should investigate various asset classes thoroughly to find a mixed bucket of investments to limit potential losses.

GOOD READ: Seven tips for creating a diversified portfolio

Pay attention to changing winds

Carefully crafting a portfolio that suits one’s needs is just the first step in an investor’s journey. Following this, investors must keep track of the returns offered by their investments. In fact, the efficiency of an investment decision is usually measured by the return it offers.

It is worth noting that most assets are exposed to a series of ups and downs that alter the returns with time. Therefore, investors should educate themselves on the possible factors affecting their investments and estimate the direction of the effect.

If an economic slowdown has caused a weakness in the investment return, shifting to a different asset class may not help investors much. However, if a specific sector has been shaken by a crucial policy change or an external factor, switching to a different asset class might bring some luck for investors. Therefore, investors must keep a watchful eye on the portfolio performance while making constant efforts to re-shape the portfolio to strengthen investment returns.

In a nutshell, varying levels of volatility should not deter investors from entering the investing arena. With certain crucial factors in check, investors can start their investment journey on a positive note and multiply their wealth by constantly updating their portfolios.

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