If you are new to the world of investing, you may be wondering exactly where to start when it comes time to design an investment portfolio. The composition of your investment selections largely depend on your particular investment objectives and your current financial needs. Following a few important steps ensures you will have a diverse, well-rounded portfolio designed to meet your financial goals.
1. Determine your investment goals for both the short term and long term, and decide what level of risk you are willing to accept. As a long-term investor, you may avoid risk by choosing stable, proven investments structured for steady long-term growth and income, or you may be comfortable investing in riskier burgeoning markets and fledgling companies because you can afford to weather some dips and drops in the market over time. As a short-term investor, you may be unwilling to risk possible investment failure in the near future, or you may be investing solely for short-term financial gains. Some short-term investments that carry higher risk can result in higher potential profit.
2. Create a plan for asset allocation in your portfolio. Nearly every investor understands the importance of diversification to maximize return and minimize risk. Placing your investment funds into more than one type of financial vehicle helps ensure financial preservation and reduces risk that all of your money could be lost in one failed investment. Take a temperature reading of the markets and make informed decisions about the possible investment opportunities around you. You may invest in stocks, bonds, mutual funds, foreign markets, real estate and even cash and insurance products, notes investment information website 360 Degrees of Financial Literacy.
3. Research your potential investments carefully and always review prospectus information. Investment and banking services provider ING recommends learning about the investment objectives of any funds you may select in addition to the fees, expenses and performance history associated with any type of investment or brokerage account. Developing a keen understanding of investment objectives can help you select the investments that are on par with your individual goals and personal risk tolerance. In addition, fees and expenses can eat into your investment dollars and reduce profitability whether your investments are successful or not.
- You may also seek the assistance of a professional to help you design an investment portfolio appropriate to your financial goals.
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