An investment portfolio is an individual tool to accumulate and multiply capital. Each person should have their own portfolio, customized for the goals of the investor and the timing of their achievement, attitude to risk, age. The investment portfolio includes: securities – stocks, bonds; index fund shares – ETF; units of mutual funds; currency; precious metals – gold, silver, platinum; derivative financial instruments – options, futures; real estate; deposits; exotic assets – antiques, collection wine; startups and more. Depending on the chosen strategy, some assets may be missing. But the levels of risk and return will depend on the correct distribution of the remaining ones.
Types of investment portfolios by degree of risk
- Conservative portfolio. It is chosen by people who have a high susceptibility to risk and want to quickly reach a financial goal. For example, an investor has 3-5 years left until his retirement, and his goal is to save for old age. Therefore, the investor is faced with the task of preserving savings. Low-risk assets are suitable for him: deposits, savings accounts, federal loan bonds. They have predictable returns at or slightly above inflation.
- Moderate portfolio. For those who are willing to take risks within reasonable limits and claim the market average profitability. The portfolio requires management, because it includes not only government, but also more risky corporate bonds of reliable issuers, shares of index funds and – exchange-traded mutual funds, mutual funds, blue-chip stocks.
- Aggressive portfolio. This portfolio has a minimal share of conservative instruments or none at all and a high share of risky assets: stocks and bonds of individual issuers, futures and options, venture capital investments.
Types of investment portfolios by the degree of investor involvement
- Active portfolio. Requires 24/7 management from the investor. Includes profitable and risky assets: growth stocks, high yield bonds, startups, IPOs.
- Passive portfolio. It is often used by investors who do not want or cannot engage in analytics and monitoring. The composition most often includes shares of index funds, shares of mutual funds, precious metals – ingots, coins, an impersonal metal account.
Types of investment portfolios by target time
Short term from 1 to 3 years. In this case, you cannot risk your money, therefore up to 100% of the portfolio is occupied by deposits and government and corporate bonds of reliable issuers.
Medium term from 3 to 10 years. More risky assets can be added to those listed above: shares of index funds and individual issuers, corporate bonds, mutual funds.
Long term over 10 years. The largest share is assigned to risky and profitable instruments. But the closer to the target date, the less the share of risky and profitable assets.
How to create an investment portfolio correctly for a beginner
Stage 1 – formulate a financial goal. It must be specific, expressed in monetary terms and have a deadline.
Stage 2 – determine the amount of the monthly investment contribution. Better to use an investment calculator.
Stage 3 – define a risk profile. You can use specialized tests. The test will help determine risk susceptibility and provide recommendations on portfolio structure.
Stage 4 – choose the type of portfolio and investment strategy. At the previous stages, information has already been prepared that will help to competently assemble an investment portfolio, taking into account the goal, the desired investment period and the risk appetite.
Stage 5 – open a brokerage account. The procedure itself will take no more than 5 minutes, it can be done online. But choosing a broker should be given more time and compare offers based on the following criteria: availability of a license, place in ratings, tariffs and terms of service, customer reviews.
Stage 6 – select assets in the portfolio. Select assets on your own or with the help of a financial advisor based on the adopted investment strategy. If you act on your own, additionally study the methodology for analyzing assets by books, articles on the Internet, and in special courses. If you turned to a broker, rely on the professionalism of the consultant.
Stage 7 – Rebalance the portfolio. The task of the long-term investor is to adhere to the chosen strategy and regulate the shares of assets in case of their change. This will allow maintaining acceptable levels of risk and profitability for the investor even in the event of market fluctuations.
