A Beginner’s Guide to Building an Investment Portfolio

An investment portfolio is a compilation of financial assets or investments owned by an investor. An investment portfolio may comprise stocks, bonds, equity, debt, mutual funds, cash, and cash equivalents, including closed-end and exchange-traded funds (ETFs).

The first step to building an investment portfolio is to know your time frame and how much risk you can tolerate (risk tolerance). Every investment entails some level of risk. Risk tolerance is your ability to handle and accept a loss in the value of your investments. It also requires facilities to manage possible risks. Your investment horizon or time frame can be one year, five years, until retirement age, or for a lifetime.

Your next course of action is to determine how much assistance you need. Some people make their investment decisions and build a portfolio after taking time to research stocks, mutual funds, and other investment securities. If this approach interests you, you can also take online courses and read books on the risks involved in investing and how to diversify your portfolio. If the DIY approach seems intimidating, hire a financial advisor to advise and assist you in building and maintaining your investment portfolio. There is a third option which is the Robo-advisor. Robo-advisors are automated investment services that use efficient computer algorithms and augmented software to build and maintain your investment portfolio. Robo-advisors are recommended for regular or personal investments and are not professional.

When building an investment portfolio as a beginner, choosing the correct investment account that matches your goals is important. For example, if you’re not saving for retirement and wish to invest short-term, consider a standard taxable brokerage account. You can decide if you want sole or joint ownership of the account. Also, you can deposit any amount of money into a taxable brokerage account and withdraw funds whenever you want. Please note that interests and gains in investment are taxed in the year it is received. Other investment accounts are retirement accounts, education accounts, and custodial brokerage accounts for minors.

The final step is allocating your assets and diversifying and managing your investment portfolio. Asset allocation is an investment strategy to decide what assets to purchase. This decision is dependent on your personal goals, risk tolerance, and investment time frame. Assets are securities like mutual funds, bonds, stocks, treasury bills, cash, and EFTs. If you cannot handle much loss and are investing short-term, it is better to stick to low-risk assets. The best low-risk assets are treasury bills, treasury bonds, treasury notes, corporate bonds, and money market mutual funds. But for long-term investments, don’t be averse to high-risk investments. Long-term investments include real estate, stocks, individual retirement accounts, mutual funds, and employer-sponsored retirement accounts (401(k), 457 plan).

It would help if you diversified your investment portfolio. It is better to invest in different stocks because of fluctuations in the market value of securities. This way, if you’re experiencing a loss in one investment, it doesn’t crash your entire portfolio.

Creating an investment portfolio can be taxing. However, with these steps, you can simplify the process. Investing is a smart approach to increasing wealth, attaining financial goals, and securing present and future financial security. Whether you are investing in certificates of deposit (CD), mutual funds, stocks, bonds, real estate, or oil and gas, the goal is to earn higher rates of return and build wealth.

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