Building an investment portfolio doesn’t really have to be complicated. An investment portfolio is nothing but a collection of assets that include stocks, mutual funds, bonds, exchange-traded funds, etc. In case you are wondering how to build a good investment portfolio, you have come to the right place. Read on to find out!
With the global economy now poised for a fast recovery following the successful distribution of the Covid-19 vaccines, investors are once again turning to their investment portfolios. Those who decided to hang on through spring downturns are now being rewarded for their patience, whereas the rapid economic recovery has started to inspire a lot of new investors to buy equity shares for the first time in their lives.
You can also opt to start investing in a saving plans that certain banks have to offer. HDFC Savings Plan is one of the best in the market.
Whether you are just getting started or a long-time investor, here are a few steps you need to take to build your investment portfolio for the “new normal.”
Step 1- Determine your risk tolerance
Risk and return are related inversely. The more risk the investor takes on, the higher they expect the potential returns. Individual equity shares usually involve higher risk as compared to government securities. When it comes to cash, it holds little to no risk at all, other than the potential loss of their purchasing power over time.
Step 2- Investments should be diversified
Your next step should be to build a portfolio that is diversified, offering you optimal returns and also safeguarding corpus from eventualities that are undesirable. As the past few years have shown us clearly, we can’t be certain of what the future holds. Hence, it is essential that your investment portfolio is tailor-made to withstand all the uncertainties and the curveballs thrown your way. To achieve diversification and minimize this risk—you should invest in a wide range of investment companies and types.
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Step 3- Your investments should be allocated wisely
Asset allocation is generally the percentage of every type of investment that you hold in your portfolio. It is the key to achieving optimal diversification. Factors that influence asset allocation are:
Your returns expectations
Your risk profiles
Your investment time horizon
For instance, if you are one with an aggressive risk profile and want higher returns while you have an investment time frame of 10 years, then your potential portfolio asset allocation will look like the following:
5% cash equivalents or cash
Step 4- Invest regularly and keep tracking your investment performance
After following all the above-mentioned steps, the next thing that you need to do is regularly invest without fail and keep tracking the performance of all your investments.
Assessing the performance of your portfolio on a regular basis will ensure that you are on the right path to achieving your financial goals. If your portfolio performance is below your expectations, then you have to analyze and identify the reason for the underperformance.
Step 5- Keep rebalancing your portfolio
A periodic review helps you assess whether you are being true to the asset allocation strategy you planned or not. Without regular assessments, your portfolio might become too conservative or aggressive for your risk profile, which, in turn, can decrease the likelihood of you ever reaching your financial goals.
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