How to Successfully Invest and Build Your Dream Portfolio

How to Successfully Invest and Build Your Dream Portfolio

Every industry speaks its unique language and this is true of the investment niche as well. But if there are some terms that most anyone can relate to, they are “investment portfolio,” “retirement goals,” and “dream portfolio.”

These three popular terms are interlinked and perhaps the crux of our professional lives. We work hard to retire peacefully and early while living a comfortable and well-cushioned life on our savings.

However, it is somewhat mystifying to see why people view investing and creating a portfolio as a complicated, unachievable task. Building and maintaining an investment portfolio does not have to be a complicated task.

With the presence of competitive advisors and small funds to start with, you can do a pretty good job of investing successfully and building and maintaining your dream portfolio.

The Basics of Investment Portfolios

In the simplest terms, an investment portfolio is a collection of your assets. These could include intangible and tangible things like exchange-traded reserves, mutual funds, bonds, and stocks. The correct way to look at an investment portfolio would be to identify it as a backup plan for your life after retirement instead of a physical space.

In fact, in the age of digitalization, an investment portfolio is more of a metaphorical roof that houses all of a person’s assets under a single roof. Now let’s suppose you own a 401(k), an account of taxable brokerage, and an account for individual retirement. Hence, you can look upon these collectively when figuring out ways to invest in them.

There is also the facility of financial advisors, like Betterment, and Robo-advisors, like M1 Finance, who take the burden of creating and managing an individual’s dream portfolio. They do the hard work for you as you rest easy and look forward to a financially-secured retirement.

Dream Investment Portfolio- Appropriate Size with Consideration for Retirement

Before you plan on a route to building your dream investment portfolio, you should first ask yourself an important question. It would help to question how large you want your investment portfolio to be, especially considering your life after retirement.

If you answer this question with confidence and precision, you’re on the right track. But if you struggle to find a good answer, you don’t know where you’re headed. With dream portfolios, we do not run on guesswork. Rather we must chart a sure course to attain our investment and return goals.

Hence, the size of your portfolio must equate to where and how you plan to live, as well as how much you intend to extract from your portfolio every year. People commonly assume a shorter lifespan for themselves than their actual life.

A pro tip is to look at a realistic and relevant life expectancy percentage to determine the size of your investment portfolio. Remember, starting early will help take advantage of the power of compounding interest.

Investment Portfolio Building Process

Here are some steps to follow:

1. DIY or Expert Assistance?

When you begin building your investment portfolio from scratch, you should first decide if you want to build a portfolio yourself or enlist the help of a finance expert. With the latter, you will have to pay a certain fee, but you can consider Robo-advisors, who are relatively cheaper.

If you can’t afford to take risks and don’t want to go through the effort of making a portfolio, you could turn to a professional. They will take note of your overall goals and risk tolerance and manage a profitable investment portfolio for you.

2. Decision Making

The next important step in building an investment portfolio is to consider the level of risk you can tolerate. Based on your tolerance to risk, you will have to decide where your funds will go on the actual assets. Your options include:

Bonds

Bonds are loans you give to the government or companies and receive full payment with interests over a short period. If you ask around, finance experts will tell you that bonds are relatively safe compared to other assets. However, the drawback is that they offer a smaller return.

We also refer to these as fixed investments for income because you know for sure the total amount you will earn by investing in bonds.

Stocks

Stocks give you ownership but only by a fraction of a slice of a company. People generally invest in stocks of those companies whose values they trust will increase in time. But there is a lot of risk in these assets.

You see, while one can be confident and very optimistic about the success of stock growth, there can be unfortunate circumstances. One bad day for the company is all it takes for the stocks to start plummeting. Hence, it is likely that the stocks may not increase in value at all or even lose value. But all is not lost, and there are several mitigation tactics you can apply.

People commonly take the funds route for stocks these days, such as mutual funds, ETFs, and index funds.

Mutual Funds

The greatest advantage of mutual funds is the sheer diversification that it offers, which wouldn’t be possible in individual stocks. With mutual funds, you even get a safety net in the form of bonds and stocks altogether. In fact, finance experts believe that mutual funds are even safer than individual stocks.

3. Align Your Account with Your Goals

While building a dream investment portfolio, make sure that your ultimate goal is to have passive income, even by the time you retire. Therefore, you should carefully select an account that aligns well with your ultimate investment goals.

You could opt for various kinds of investment accounts. For retirement purposes specifically, you can consider IRAs, which offer tax leverages for your invested funds. If your investment portfolio isn’t specifically for your retirement, then you can consider accounts of taxable brokerages.

Often people invest in portfolios for other purposes, like purchasing a house, sponsoring a startup, and so on. If the purpose of your investment portfolio is to cash in within, say, five years, then you could opt for an account with high-yield savings instead.

The crux is that you must be very clear about your ultimate goals behind the investment portfolio. Only then will you be able to select the right investment account for the entire project to be successful.

4. Asset Allocation- Choose what’s best

You may have done your homework and concluded that you want to invest in funds, as well as a couple of individual stocks and a few bonds. But how much should you allot to each class of asset you choose? How much do you feel is appropriate for each asset category?

The act of splitting your funds among the chosen assets is what we refer to as asset allocation. You must note that careful and smart division among these is also an influencing factor in the profit you will yield in the long term. This fact, too, is dependent on your tolerance for risk.

If you have started to build your portfolio from scratch, perhaps it is a good idea to follow a role model. You could set a successful investor’s portfolio as an example and follow their framework. Or you could simply take an idea of how they allocate their assets to formulate a plan for your assets.

Final Thoughts

An investment portfolio refers to the collection of assets under a person’s name, which gathers interest over time and builds a sizable financial cushion. The goals behind building a dream investment could vary with each person. While some may want a short-term financial reward to purchase a house, sponsor their startup or support a vision, others may want to invest for a comfortable and well-provided life post-retirement.

Regardless of your ultimate goals, a few steps, expert guidance, as well as smart planning and execution will help you achieve all your investment portfolio dreams.