Dream of possessing a perfect investment portfolio that addresses your retirement goals and provides consistent earning without causing sleepless nights over market volatility? A tall order indeed! While the above scenario appears to-good-to-be-true, there are ways to construct a healthy and stable portfolio that efficiently balances risk and return.
For starters, assess your financial needs and the time frame you are looking to accomplish them. With clarity on this front you can to start working towards building a strong investment portfolio. Find the prospect daunting? No problems! Look for a reliable company that provides professional investment management services. They can help in creating a strong portfolio that meets your exact needs with some smart investment strategies.
Risk Taking Capacity:
The risk-taking capacity varies from person to person and depends largely on age, financial situation and one’s future goals. For an optimal selection of stock, you need to figure out how much risk you can endure. Young and long-term investors are generally comfortable with an aggressive portfolio comprising equities since they have the time to absorb any potential losses.
On the other hand, debt mutual funds are a better option for a cautious and the elderly investors. Though returns from the latter are lower, there is no stress pertaining to performance. An annual return of around 20-30% from stocks is generally deemed ideal.
Refrain from investing in just one avenue. It’s important to be well-diversified. Allocate your investments in various asset classes (fixed deposits, bonds, mutual funds, debentures, real estate, or futures & options). This slashes the overall risk of your portfolio.
While diversification doesn’t safeguard you against losses in the bearish market, it makes the ride less rocky. If some of your holdings flounder, the loss can be offset by stocks that are performing well. In short, a good mix of investments adds stability to your portfolio and brings good returns.
Patience to hold on:
Smart investment is all about being patient and holding on to quality stock. There are instances when the temptation to make quick money or the fear of a declining market has prompted investors to sell high performing holdings at the wrong time. Rash decisions of not staying on board are often regretted down the line.
Keep monitoring your portfolio. Also, a little churning is recommended. It is essential to add new stock and dispose of the old one to ensure your investments are in sync with the prevailing market conditions. Remember, these readjustments should be occasional and only if there is the dire need to enhance the portfolio.
Learn about market dynamics:
The guidance of an investment advisory service provider in building a good portfolio cannot be undermined. However, as an investor dabbling in stocks, it is crucial that you have some knowledge about the economy and the dynamics of the market. Surf online and educate yourself about the nitty-gritty so that you can make informed choices.
In a nutshell, building a strong investment portfolio is about focusing on your financial goals and investing in a well-diversified stock based on your risk profile. And yes, if you want to reap rich dividends, have the patience for the long haul.