Last Updated on Mar 31, 2020 by James W
If you are starting a personal investment portfolio, your first question should focus on your aim. Do you want to achieve a big return and take some risks in the hope of doing so, or are you of a more conservative disposition and simply want to transfer your savings into something more secure? Whatever your aim, it is good to know that, constructed properly, an investment portfolio can deliver a healthy profit.
As someone starting out in investment, you may have questions about the basics of investing strategies. If you want to establish a basic goal for investing, think of it in this way: you plan to work hard enough to make more money than you spend, with the intention of investing the difference. Over time, you hope to see this investment grow so that when you retire, you will have sufficient funds to live on.
It is necessary to understand the difference between saving and investing. Saving can be something as simple as putting loose change into a jar. Typically, savings are put into the safest place possible, with access available at any time. Examples include bank savings accounts or certificates of deposit. The sacrifice you make for security and easy access is that your savings earn a low rate of interest and will increase in value only slowly. Investing your money, per se, represents a greater chance of obtaining a higher rate of return over time, with a view to leaving the money for the long term. Access to the money is by no means instant, but the rate of return is higher than it is on savings. The tradeoff is that with certain investments, you could lose your principal – the sum of money initially invested – if the value of your investment were to plummet, though some investment options do guarantee your principal.
An experienced investment specialist can guide you on what to do, and what not to do, in terms of making a serious return on a personal investment portfolio. If you are to make a serious profit, you have to run an investment portfolio professionally, and having guidance from a specialist ensures a professional setup from the start. Many of us do not have any experience of investing, and even if we know people who do, their advice might not be objective or even useful. Therefore, independent, objective advice from a professional makes perfect sense.
Assume that your investment goal is to make a moderate profit. What are the options available to you? One option is to invest in mutual funds, with a built-in margin of safety. Mutual funds own stocks and bonds – representing partial ownership of a company – on behalf of investors. Index mutual funds are low cost, and because they purchase the same dollar amount of a fund on a regular basis, investors need not worry about timing. The average purchase price will, in the end, be a “fair??? reflection of the market value of a stock. An investment advisor will recommend investing in stocks and bonds, and they typically make up a high percentage of investment portfolios. An investor with a cautious outlook can choose to leave some of their investment in cash, though advisors would stress that too high a percentage of an investment in cash risks the portfolio growing at far too low a rate in the long term.
Assume that your investment goal is to make a higher profit and you do not mind taking risks, even with your principal. A riskier approach is to buy and trade stocks yourself. For a beginner or an investor with not much money, trading stocks like this is extremely risky and not to be recommended. On the other hand, for someone willing to take that risk, buying and trading stocks could be very rewarding in the long term. It is critical, however, that you educate yourself well in how to trade stocks and that you keep yourself up to date on what is happening in the markets – that means on a daily basis. Learn the basics of how to value a company. If you cannot learn how to read the cash flow statement or balance sheet of a company, you have no business buying stocks and should choose another, safer investment option instead. If you hold on to carefully chosen stocks over a long period of time, there is long-term value to be had, especially if those stocks pay dividends to investors. Some stock brokers will allow you to reinvest dividends in additional stock at no cost.
Before starting your investment portfolio, ask yourself what your expectations are in terms of return on investment, and with that as your guide, begin creating your portfolio.