Investment portfolio definition

A portfolio is a collection of investments. You might invest in stocks, bonds, real estate, commodities, art, collectibles, or anything else that interests you. Some people prefer to use an automated investment management system, while others like to do it themselves. And there are many ways to structure a portfolio.

The most common type of portfolio is called a diversified portfolio. This involves investing in several types of assets. For example, you could invest in stocks, bonds and real estate. Or you could invest in a mix of stocks, bonds, cash, gold and silver.

You can also build a portfolio around one particular asset such as stocks, bonds, real estates, etc. If you're interested in collecting coins, you could buy coins directly from coin dealers.

There are no limits to how much money you can put into a portfolio. But keep in mind that some investments are riskier than others. So you'll probably want to avoid putting too much money into high-risk investments.

1. Choose a Platform That Fits Your Needs

The world of investing is changing. It’s important to consider how you want to invest—and what platforms fit your needs. There are many options out there, including online brokerage accounts like Freetrade and eToro; robo-advisors like Wealthfront and Betterment; and index funds. And while each option has advantages, some are better suited for certain types of investors. Below are some aspects to keep an eye on:

#1: Investment Options

Investing is about making money over time. You don’t just buy one type of fund; you diversify across asset classes. So, when selecting a platform, make sure it offers a variety of investments. Some platforms offer a wide range of stocks, bonds, ETFs, mutual funds, real estate, cryptocurrency, commodities, and even venture capital. Others focus on specific areas such as small cap stocks, international equities, or emerging markets.

#2: Fees

Fees matter. They can eat up your savings, especially if you’re paying high fees. When comparing platforms, keep in mind that most platforms charge either a flat fee per trade or a percentage of assets under management. If you choose a platform that charges a flat fee, you won’t see any change in your account balance unless you actually sell shares. However, platforms that charge a percentage of assets usually require a minimum initial deposit. This means you’ll lose money if you put less than $5,000 into your account.

#3: Account Types

When choosing a platform, be aware of the different account types offered. Some platforms only allow you to open a traditional brokerage account. These accounts typically have higher trading costs and lower liquidity. Other platforms offer more flexible account types, allowing you to create a self-directed IRA, Roth IRA, or other tax-advantaged account.

2. Choose your investments based on your risk tolerance

How much money you want to invest depends on what you hope to achieve with it. If you are saving for retirement, you might want to put away $100 per month and keep it there for decades. That’s a lot of money. But if you want to buy a house, you might want to save up $1 million now and pay off your mortgage early. You don’t want to lose your entire nest egg because you invested too aggressively but you also don't want to hold back to much and not see any growth.

Risk tolerance is linked to your emotional state and your long-term goals. Someone who wants to retire early might be willing to take greater risks and accept the potential for higher losses in exchange for potentially having higher gains. Conversely, someone who doesn’t plan to retire anytime soon might be willing to tolerate more consistent investment volatility in exchange for compounding advantages over the long-term.

The most important thing to remember about risk tolerance is that it changes over time. In fact, some people change their minds completely about whether they want to invest or not within a few months. F

3. Carry Out Your Due Diligence

Before investing, do your homework. Research the company behind the platform you’re considering using. Find out how many years the company has been around, where it was founded, and how large its customer base is. Look at its financial statements and find out how profitable it is.

You may want to spend some time learning how to read balance sheets, income statements and other important financial documents. I plan on creating posts on the future regarding these subjects so follow my blog to find out more in the future.

4. Determine The Best Asset Allocation For You

The most common question we receive is "What asset allocation do you recommend?" This is a critical decision because it affects every aspect of your investment strategy.

There are four main factors to consider when determining what type of portfolio makes sense for you. These include risk tolerance, age, income needs, and time horizon.

Risk Tolerance - How much risk do you want to take on? Are you willing to accept volatility in exchange for potential gains? If you're comfortable taking some risks, you might choose a high-risk portfolio such as growth or balanced funds. Alternatively, if you prefer stability over growth, you could opt for low-risk portfolios like value or core funds.

Age - As you grow older, your risk tolerance changes. When you're young, you're more likely to tolerate greater levels of risk. However, as you approach retirement, your risk tolerance tends to decrease. This is why younger investors tend to favor aggressive strategies while retirees often lean toward conservative ones.

Income Needs - Do you plan to retire early or late? Depending on your answer, you'll need different types of investments. Younger people typically don't have enough saved up to comfortably live off of interest alone, so they must rely on capital appreciation to generate income. On the other hand, those approaching retirement can afford to invest more aggressively since they have plenty of money saved up.

Time Horizon - Finally, how long do you plan to keep investing? Some people enjoy watching their assets compound over time. They may even look forward to passing down their wealth to future generations. Others simply want to make sure they have enough money to cover their basic living expenses during retirement. In either case, it's important to consider how long you intend to hold onto your investments.

5. Rebalance Your Investments

A good rule of thumb is that you should rebalance your investments every year. This ensures that you are taking advantage of market fluctuations without being overly exposed to one asset class over another. If you don’t rebalance, you could end up with too much exposure to certain sectors or markets. You might even find yourself overexposed to a specific industry such as technology stocks.

If you want to do it manually, you can use tools like Robinhood or Wealthfront to help you automate the process. These platforms allow you to set up automatic rebalancing rules based on things like the S&P 500 index and your portfolio allocation percentages. They will automatically move money into different asset classes depending on how well each sector is doing.

Another option is to use a robo advisor. Robo advisors are automated investment management systems that invest your money based on a variety of factors including your risk tolerance, age, goals, and financial situation. Some of these platforms will offer rebalancing features built directly into the platform. Others will require you to sign up for a separate account where you can access those features. Either way, you won’t have to worry about it anymore.

6. Diversify Your Investments

When it comes to diversifying your portfolio, there are several types of investments you might want to consider. For example, some people prefer to invest in real estate, while others choose to put money into commodities like gold and oil. And still others opt to purchase stock in companies such as Apple Inc., Amazon.com Inc. and Facebook Inc.

The reason why investors should diversify their holdings is because it helps protect against market volatility. In addition, diversified portfolios tend to perform better over long periods of time.

8. Keep An Emergency Fund

You might think you don't need one, but you'd be wrong. You never know when something unexpected happens, like losing your job or getting sick. Having some extra cash lying around could come in handy. If you're looking to start saving now, here are eight ways to do it.

The last thing you want to happen when trying to build an investment portfolio, is you having to sell assets to cover emergency costs. This may sometimes be okay when your in profit, but there is nothing stopping your assets being at a loss when you need the money which of course is not ideal.

Emergency funds are CRUCIAL!

Summary

Really creating a successful portfolio is a difficult process. Some people may find success in areas where others don't. I think the best thing at the start is to not worry about losing money as you likely will lose money when you first try investing or trading. The important thing is to learn what works for you, what you enjoy, and what you can do consistently.

Personally I enjoy investing in long term growth stocks such as $TSLA, $BNGO and others (checkout my monthly portfolio updates if your interest). This strategy is good for me as I am still young at 22 years old. I have a long time to figure stuff out so I am happy to take some added risk when I am younger in the hopes it goes well. And if it doesn't go well... at least I tried.

I am not a financial advisor and anything I say in my blog is not to be taken as financial advise. For any financial advise please contact a financial professional. My blog is based on my own opinions, research and understanding of the financial markets.

I hope you have found this blog post helpful. If you did enjoy the blog then consider leaving feedback below or sharing the post on social media. I regularly post content on the stock market, personal finance, and side hustles/entrepreneurship so if you would like to read more then consider subscribing to my blog through my website (www.portfolio-hub.co.uk) for free or follow me on Medium.com.

Thanks for reading

FAQ

Where our money comes from

The original source of our funding was a bequest left by Sir Henry Wellcome on his death in 1936. For the next 50 years, we were the sole owner of Wellcome Plc, the pharmaceutical company founded by Sir Henry. Dividends from the company funded the charitable grants we made for research.

Source: wellcome.org

How to build an investment portfolio?

If building an investment portfolio from scratch sounds like a chore, you can still invest and manage your money without taking the DIY route. Robo-advisors are an inexpensive alternative. They take your risk tolerance and overall goals into account and build and manage an investment portfolio for you.

Source: nerdwallet.com

How much risk is right for me?

There's no magic formula to calculate your risk. The amount of risk you're prepared to take is a matter of personal choice.

Source: hl.co.uk