Friday, 24 October 2014

Building The Ideal Portfolio

If you're reading this article, chances are that you are interested in building your own investment portfolio but you have no idea how to begin.

Well I'm attempting to assist you in that direction as far as I possibly can.

When people are trying to build their own portfolio, Asset Allocation is probably the number one thing in mind.





You read many financial blogs, books etc. You could have heard the age old maxim,

"Don't Put All Your Eggs in One Basket."



Why? Investments, any kind of investments carries risk. So it's better to spread your money around in various assets. So, if one investment fails or performs poorly, you don't damage your overall returns / investments. When you spread your money around, it's a form of diversification. 

So we come to the second essential part of an ideal portfolio.

"Diversification"

Assets like ETFs, Bonds, Domestic and International Equities and cash should be a part of your portfolio. Higher returns ; Taking more risks. Being cautious? Having more bonds/cash etc would be a good idea.

The way you allocate your assets will change over time as your needs changes. When you're young, your portfolio may have more stocks and equities. During retirement, your portfolio may have more bonds.

There are usually 3 different types of strategies.

1. High Risk.
You're willing to take on more risks for growth potential.

2. Balanced.
You're a mix of bold and cautious. You can't afford a huge setback.

3. Cautious
You like it safe. You're not willing to take high risks.


Limit your exposure to certain industries. Maybe you have too many shares in the oil industry. Or technology. One major change in the industry may leave you badly wounded.

It also depends on your goals. Dividend Stocks are a boost for investors who wish for good dividend yield.

Rebalancing is also important to achieve maximal returns.


Signing off,
Teenage Investor

4 comments:

  1. Diversification is good and we try to not over-diversify.

    ReplyDelete
  2. Old man liao; but still just stocks (SGX local only) and cash/No Return My CPF!

    Just computer and Me with No customers, No boss, No Peer and No Kar Kia. Bo pian. Has to be stocks as they fit into all.

    It is all about growing net worth and cash flow. We just need a way to do it. No need to be fanciful.

    ReplyDelete
    Replies
    1. Ha! Ha!
      CW you old liu? 55+ or 56+? i die liu 66+. Still want to be in the market leh! - i think i am "CHOW PUTT TONG" in the market lol!

      Delete
  3. if you want market returns, buy ETFs to diversify
    if you wanna stock pick, better to focus

    ReplyDelete