How To Build a Financial Portfolio
If you’re just getting started investing funds and saving for the future, the idea of building and diversifying a portfolio may seem like an opaque set of words thrown around at fancy dinner parties. The good news is that portfolio building does not need to be a daunting undertaking. Building a portfolio basically simply refers to the process of securing wealth by adding money to accounts, funds, trusts, etc. Diversifying a portfolio means spreading out these funds among multiple investment avenues, thereby lessening the risk. With some due diligence and planning, even the beginner investor can follow some simple advice to start out on the right foot.
The Big Board
The New York Stock Exchange, or the “Big Board,” is the largest stock exchange in the world and an excellent place to begin trading in stocks. Financial experts like Harvey Bell generally suggest portioning out at least some of your capital to publicly traded stocks. It’s usually a good idea to buy a variety of stocks in different industries and of different sizes or to buy an index fund. This diversity helps reduce risk by ensuring that if one stock tanks, your hard-earned funds won’t all be flushed down the proverbial toilet. It’s a classic scenario of enacting the old adage, “don’t put all your eggs in one basket.” This might reduce possible rewards, but it will help you build equity much more reliably than riskier behaviors like day trading or all-in investing.
Fixed Income
Investing in bonds is another great way to build and diversify your financial portfolio. Bonds are essentially loans to companies or governments with a fixed amount of interest they will pay for a predetermined period of time. So, you put in a certain amount of money as the principal and annually receive a small percentage of interest as long as the bond is active. Once the bond “matures,” the entire principal is returned to the investor. This is a type of security that is attractive for its certainty, but it pays lower dividends overall than stock market trading and therefore should not make up your entire portfolio.
Real Estate
Once you’ve dipped your toes in the investment waters with stocks and bonds, it might be time to look into real estate investments. This doesn’t have to mean purchasing your own rental properties or buying huge tracts of land. It can be as simple as putting some capital into a real estate investment trust, or REIT. These are funds that own commercial real estate, and investors share in the profits. These investments can be both more profitable and less volatile than standard stock and bond investing, and experts suggest investing somewhere between 5% and 15% of your portfolio in these types of trusts.
Building a diverse and equitable financial portfolio is not a one-and-done kind of thing. It takes reevaluation and reinvestment as the market changes and companies go in and out of favor. It is also not a great get-rich-quick scheme. Investing is usually best approached as a way to secure your precious income for later use and increase the funds over time. Plan appropriately, and you will both secure your revenue and see valued profits.