Working hard all your life should lead to bearing huge fruit in the future. Simply earning money doesn’t assure a relaxed life after retirement. It is important to make sound investments that will give you significant returns. Unfortunately, the majority of people today don’t know about creating an investment portfolio.
If you are not aware of the intricate points of making an investment, don’t worry. This article lets you learn all you need to about how to build an investment portfolio for beginners.
What Is an Investment Portfolio?
The investment portfolio is the selected collection of investment opportunities and methods that are acceptable for an individual investor. Investor portfolio needs to be managed constantly to make sure that the investor can reap the maximum benefits from the investments.
It is crucial to know the basics of investment portfolio management to know how to build a stock portfolio.
Creating an investment portfolio involves analyzing the various investment opportunities, selecting a mix of the most suitable investments that help the investor achieve their investment goals, revising and evaluating investment portfolio at frequent intervals and making the necessary changes to improve it with time and new opportunities.
If you’re wondering about how to build the best stock portfolio, then you need to know the factors, the different ways, the types and the processes that go into creating an investment portfolio.
Are There Different Types of Investment Portfolio?
Yes, there are several different types of investment portfolio as every investment opportunity comes with different risk levels and ROI.
It is vital to make sure that creating an investment portfolio is aimed at minimizing risk and maximizing profit. It is recommended to invest in different investment options with the help of a suitable investment portfolio.
These are the different types of investment types:
- Aggressive Investment – Aggressive investments include high-risk investments that yield higher returns in a short period of time, such as futures, commodities, etc.
- Defensive Investment – Defensive investment is made of investment options that have a low risk with a stable return (earning) ratio, such as blue-chip stocks.
- Hybrid Investment – Hybrid investment is a mix of aggressive and defensive investments, which includes some high-risk investments, while others are low-risk stocks.
Now you know the basics of creating an investment portfolio, let’s take a look at the steps on how to create an investment portfolio.
Step by Step Guide on How to Build Investment Portfolio for Beginners
This step-wise guide on how to build an investment portfolio for beginners is from our expert investment portfolio managers. It is designed so that you, as an investor, can successfully build a workable stock and investment portfolio.
Before embarking on these instructions, here are the components that you need to have ready:
- Own diversified investments from different asset classes
- Fully funded retirement account
- Own a home
- Are debt-free
- Have a six-month emergency cash reserve
Making sure that the above aspects are available will ensure optimal returns from your investment portfolio.
Now, let’s check out the basic steps for creating an investment portfolio:
1- Create a balance sheet
The first step towards creating an investment portfolio is to make a balance sheet. In this, you need to include all your assets, such as cars, bonds, stocks, cash, bank accounts, mutual funds, etc.
Next, make a list of all your debts, such as mortgages or credit card payments. It is important to craft an honest and accurate balance sheet as this works as a benchmark for your future investment planning.
2- Pay towards your pension plan
Most employers today match the amount an employee sets aside in their Provident Fund (PF) account. Although the exact amount varies between different companies, the benefits are mostly increased as the tenure increases.
Most people don’t realize it, but investing in your PF is an excellent investment choice because when your employer matches your investment amount, you are instantly earning 100% on your own ROI. Now imagine how much you can earn in total when you keep paying towards your pension plan for the next 10, 20 or 30 years?
3- Clear credit card debt
It is important to formulate a plan that will help you to clear your credit card debts as soon as possible. Prioritize paying off the high-interest rate debt first, then allocate the maximum amount you can spare towards paying off these bills from your income. If you have multiple credit cards, then go about clearing the ones with the higher interest rates first and gradually move to lower-interest credit card bills.
4- Buy a home
The next step in how to build an investment portfolio for beginners involves saving for buying your own home. Collect enough to make a down payment towards a new house. This is the best way to turn your rent expenses into equity.
5- Set aside a six-month cash reserve
After you purchase a home, you need to accumulate a six-month emergency cash reserve to cover your normal everyday living expenses. This is an excellent way to insure against sudden financial and income setbacks, including home repairs, medical bills and sudden lay off from your job, etc.
Make sure to collect enough emergency funds that it can take care of the following months for six months:
- Insurance costs
- Mortgage payments
- Utility bills
- Grocery expenses
- Minimum credit card payments
- Loan payments
6- Choose varied investment opportunities
If you have followed the steps above in this guide on creating an investment portfolio, then you need to consider expanding your investment opportunities. Consulting an expert investment portfolio manager can help you select from a wide range of investment options, including:
- Mutual funds
- Certificate of deposit
- Real estate investment trusts (REITs)
- Treasuries, etc
7- Invest in you
If you’ve got plans to start your own business, or improve your employment and professional talents and even heading out in search of better job opportunities, it is highly advisable to pursue a diploma or skill-oriented education course.
When you invest in yourself, it increases your earning potential and ensures accelerated growth of your financial plan.
8- Revise your retirement plans
Saving for your retirement is an extremely important aspect of creating an investment portfolio. Although you can take care of children’s college fees with a low-interest educational loan, there is no such option for your golden years, so it is extremely vital that you plan your retirement investments first.
So this is our step-by-step guide on how to build an investment portfolio for beginners. We hope this helps you plan a bright and comfortable future for you and your family. If you’re still unsure, there are some services that can help you when it concerns portfolio management.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.