A successful portfolio is diverse, spreading risk out over several investment opportunities.
A successful portfolio takes many different forms depending on who owns it. A young professional’s successful portfolio will look nothing like the portfolio of someone on the verge of retirement. One common theme, however, is diversity. No investor wants to put all their eggs in one basket. You know better than anyone how you want your investments to perform, but sometimes that requires hiring a professional. Here are a few tips to keep in mind when building a successful portfolio:
1. Aggressive vs. conservative
How comfortable are you with risking money? Do you have the time or patience to withstand a sudden downturn in the market? Do you shrug at the stakes of high-risk investments? Aggressive portfolios will have a greater percentage devoted to stocks, while conservative portfolios will have more allocated to bonds.
2. Diversity
Think of balance when diversifying your portfolio. You want to mix the high-risk stocks with steady bonds. If you are investing with a smaller amount of money, one easy way to diversify is in mutual funds or exchange-traded funds. Mutual funds are managed by professionals, whereas exchange-traded funds operate more like stocks. Remember the importance of diversity is to minimize the risk of financial losses if one stock or sector goes down.
3. Self-invest or hire a pro?
Are you a number-crunching researcher? Or, does your vision become blurry at the thought of deciphering the stock ticker? Those looking to build a portfolio might want to first speak with a financial planner. A more experienced investor might prefer to be more hands-on with his money. Your decision rests in your comfort level with money.
A financial planner will do the day-to-day work of managing your money but will take a small percentage of gains from what you invest. If you manage your own investments, you won’t have the expense of paying a planner, but you will have the stress of knowing your gains and losses depend on you.
Also, beware of fees charged by online trading tools. You can always use an stock market simulator to test the waters before diving in on your own.
