Building an Investment Portfolio from Scratch: Tips for Beginners
The best part about investing is that it’s never too late to start building a portfolio and reaping the benefits. However, you will need to put considerable time into learning the ropes and creating the best strategy. To help you get off the ground, we’ve put together this short guide for starting an investment portfolio from scratch.
Will You Need Support?
Treading the investment waters alone can be overwhelming, but not impossible. However, with the help of a financial advisor, you can greatly improve your potential profits. There are two different types of advisors: human financial advisors and robo-advisors.
A human financial advisor will take care of your financial portfolio and make suggestions for potential investments. However, their services typically come at a significant cost, whereas a robo-adviser will deliver many of the same services at a much lower rate.
Choose Correct Accounts
Once you’ve decided to enter the investment world, you’ll need to decide which account will work best for you. For example, alongside a retirement pot, you may wish to open a saver with high yields. Typically, you will open an account that allows you to receive more interest while having 100% access to your finances.
Asset Allocation Vs. Risk Tolerance
With your bank account ready to go, it’s time to start deciding where to allocate your assets. For example, will you invest in stocks, securities, EFTs, forex, crypto, or bonds? How you split your asset pot is entirely up to you. However, your investment portfolio must complement your risk tolerance. Essentially, if you’re not willing to take risks because you can’t afford it, your portfolio will mirror this.
Age, Goals, and Investments
Your age and your lifestyle will have a large hand in determining your investment goals. For example, if you’re in your early 20s, you may be saving to buy your first home. In this scenario, you have more time to recover losses, meaning you can afford to take more risks.
Alternatively, you may be entering the investment game late in life and your goal might be to save up for getting the most out of retirement. In this case, you will need to make less risky investments. For example, you may decide to only invest in stocks known for the very high yields.
Try Your Hand at Diversification
Investing, regardless of your chosen market, will come with volatility. After all, nobody can say with 100% certainty what will happen in the future. To help manage this risk, investors use diversification, which is the process of buying different types of stocks at different values. The idea is that while one investment is losing revenue, another will be making a profit.
Long-Term for Risky Moves
We’ve spoken a lot about avoiding risks, but this isn’t always the case. After all, the riskiest investments are those with the highest returns. However, you need to spread risky investments out properly. For example, if you’re planning to hold onto an investment long-term, you can likely afford to be riskier, which includes the following:
- Individual stock investments
- Target date funds
- Employer-sponsored accounts
- Real estate
- Mutual funds
- Individual retirement accounts
Short-Term for Safe Moves
Short-term investments are designed for playing it safe, and they’re perfect for making money that you’ll need within the coming years. Popular short-term stocks include:
- Cash or cash equivalents
- Certificate of Deposit (CD) – won’t lose you money
- Government bonds
- Money market account – higher interest rates
Investing money is a great way to turn a profit, but it also comes with considerable risk, which you’ll need to learn to navigate. Starting an investment portfolio is relatively straightforward, just make sure you understand how each market works before you begin.