Stocks, bonds, dividends – if one of your financial goals is to level up your savings strategy, you’ve likely dabbled in investing (or researched it, at the least). However, if you’re not a Wall Street professional or financial advisor, the world of investing can seem a bit daunting.
A diversified investment portfolio offers a strong financial foundation to ensure you’re not dependent on one single asset to fund your financial goals. So how can you build a solid, well-diversified investment portfolio aligned to your desired goals and level of risk that you’re comfortable with? Read on to find out.
What is an Investment Portfolio?
Put simply, an investment portfolio is a collection of your financial assets, including any stocks, bonds, and funds aligned with your financial interests and the amount of risk you’re willing to take in order to achieve your savings goals. These assets can include cash, stocks, bonds, mutual funds, EFTs (professionally-curated groupings of individual stocks or bonds ideal for tax-loss harvesting), real estate, and even art.
What Does it Mean to Diversify an Investment Portfolio?
No matter how you choose to invest, one of the core components of building up a strong portfolio is ensuring you diversify it – meaning you don’t put all of your eggs into one basket.
Through diversification, you reduce the risk of your investments by spreading your net worth across various channels and industries (ie: real estate vs. stocks vs. cash savings), while aiming to maximize your return on investment in each channel.
By investing in different industries and avenues, you increase your likelihood of growing your savings and return on investment, helping you reach your financial goals faster.
What to Consider Before Starting an Investment Portfolio
Building and managing an investment portfolio isn’t a one-size-fits-all approach, and how you go about it depends on your financial goals, interests, and risk tolerance.
- Align Your Goals with Your Stage of Life
Before building out an investment portfolio strategy, first consider your age and how much time you have to grow your investments. For example, a strategy for a 25 year old just starting out in the workforce is going to differ drastically from a 60 year old gearing up for retirement in just a few short years. Come to terms with how quickly you’ll need access to the capital you’ll be building before identifying the types of investments you’d like to make.
- Know Your Risk Tolerance
Investments are not guaranteed to offer a return, and always come with the risk of losing money in the short-term for a greater return down the road. If the idea of seeing your investments take a short-term drop makes you lose sleep at night, there’s a good chance high returns from those kinds of assets are not worth the stress.
- Determine How You’ll Diversify
As explained earlier, diversifying your investments are key to improving your odds for higher financial returns. Choose how you’ll diversify your investments – whether through a 401(k), IRA, mutual funds, real estate, bonds, stocks, and so on – and identify the accounts that make the most sense for you.
At the end of the day, the strongest investment strategy is one that is consistent and maintainable. Like any financial decision, how you go about building and diversifying your investment portfolio depends entirely on your personal preferences, goals, and stage of life. If you’re unsure where to start, consult with a trusted financial advisor to help you make the best decision for you.
The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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