Do you know how to start building a powerful investment portfolio?
An investment portfolio is simply a rundown of your assets — stocks, bonds, real estate, mutual funds, 401(k) retirement account, savings, money market accounts, certificates of deposit (CDs), cryptocurrency, employee stock options, and futures.
Now let’s talk about how to build a strong one.
Be sure to diversify
Diversifying your investments means you’re spreading your money around so that your portfolio doesn’t rely too much on one type of investment.
An inexpensive way to do this is to have a mix of mutual funds and exchange-traded funds. You also want a good mix of stocks and bonds, since they tend to move up and down opposite of each other.
Consider these investments
An ideal beginner’s portfolio will include two kinds of stocks (common stocks and preferred stocks), various bonds (government, savings, agency, or municipal), and real estate.
You want stocks that have a proven history of increased dividends and a high return on equity.
When you choose bonds, which are much less volatile than stocks (because their value changes less frequently), you might want to choose bond funds, which pay a higher interest rate than CDs and money market accounts.
In order to determine your asset allocation (the percentage of each type of investment in your portfolio) for bonds, a good rule of thumb is this: If you’re 40, then 40 percent of your portfolio should be in bonds; if you’re 70, then 70 percent should be in bonds.
Think about real estate
Real estate can be a risk, but if you’re comfortable with some debt, it can be a great long-term investment as well. You can earn monthly rent checks, and the property value will keep pace with inflation.
However, you don’t want to put all your eggs in one basket with real estate; if the market tanks, you’ll be left with nothing.
Additionally, real estate investments require more maintenance and work than stocks and bonds — think about property improvement, maintenance, repairs, etc. So some real estate is great, but too much is risky.
Ask for help
A registered investment advisor (RIA) or automated online advisor (also known as a robo-advisor) can help you parse all the terms for different types of investments.
Your advisor can help you figure out the best asset allocation for your particular portfolio based on your income, holdings and financial goals.
A robo-advisor will cost less than an RIA, but if you have complex finances, you’ll want to hire a human being to work with you to sort them out and get your portfolio in good order.
The bottom line
You’re not alone in building your investment portfolio — but now you know how to get started!