3 Important Considerations For Your Portfolio

Investment Portfolio

So what exactly is a portfolio?

An investment portfolio is your collection of investments. These include different asset classes such as stocks, bonds, cash, real estate, commodities, etc. You could even break these asset classes into sub-asset classes, such as large cap stocks, international stocks, technology stocks, short-term bonds, etc.

Your investment portfolio should be reflective of your risk tolerance (how much risk you are willing to take), your investing goals and a degree of diversification (not putting all your eggs in one basket).

Your 401k, Roth IRA, real estate properties, gold coins would all be considered part of your investment portfolio.

There’s 3 important items to take into consideration when setting up your portfolio.

1-Timeframe for investing

How long you have until you will need to start withdrawing from your portfolio will make a difference in what you decide to put in your investment portfolio.

The longer you have to invest, the riskier you could be (and should be). This would include investing more in stocks (equities) and less in bonds (less risky investments with lower returns).

Stocks are more volatile, but have the potential for a higher return over the long-term.

If you have a longer timeframe to invest then being more aggressive or risky in your investments makes sense.

If you have a shorter timeframe to invest then cutting back on risky investments could be a good idea.

I tend to be more risky with my investments. Granted, I have a longer amount of time to invest, but I’ve still seen higher returns with riskier investments in just over 5 years.

2-Risk Tolerance

The second thing to consider when setting up your portfolio is your risk tolerance.

Risk tolerance is how much you are willing to risk to get a greater return.

If you’re not able to leave stocks alone when the price drops and immediately sell them then your risk tolerance would be on the more conservative side.

On the other hand, if you are able to leave your stocks alone when the price drops and even buy more then you’d have a more aggressive risk tolerance.

Your investments shouldn’t keep you up at night so if you’re losing sleep because of your investments they may not be the right investments for you.

Investing is always a risk and comes with a degree of anxiety, but being able to manage that anxiety is what makes a great investor.

You can reduce some of this anxiety through diversification. By having different stocks, bonds or asset allocations in your portfolio will help balance the portfolio out when certain investments start to decline. It won’t be such a drastic drop in your overall portfolio.

Make sure you’re including investments you can handle in your portfolio.

3-Investing Goals

Make sure your investments align with your goals.

Just investing to invest isn’t a strategy. Having one simple goal is great.

A goal to have financial freedom in 30 years is still a goal and you can then choose the best way to set up your portfolio to reach that goal.

If your goal was to pay for your child’s college tuition then your portfolio would be set up differently.

Set up at least one investing goal and look to see where you could start.

If you need help, check out my stock market investing course, here.

Remember to keep in mind the timeframe you have, your risk tolerance (which can be increased with diversification) and your investing goals when setting up your investment portfolio.

Share below what you’d like in your investment portfolio!

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