Every investor who desires to build and grow wealth should have an investment portfolio. Wealth creation efforts are less likely to succeed if they are approached haphazardly. So, building an investment portfolio is a great way to add the necessary strategy and intention to these efforts.
FBNQuest defines an investment portfolio as a collection of all the assets an investor owns. It can be likened to a roof under which you house all your investments. A good investment portfolio will be diversified and contain a wide variety of assets such as Stocks, Bonds, Mutual Funds, Real Estate, Fine Art, Gold, among others.
The investment house states there are five major types of investment portfolios and they are built by taking the financial goals and risk appetite of the investor into consideration.
The Aggressive Portfolio – This type of portfolio is specially designed for investors with a high tolerance for risk.
The Defensive Portfolio – This category is for people who have a low-risk appetite. Building a defensive portfolio usually involves investing in stocks of companies that will stay in business no matter what. These are companies that make products that are important for everyday survival.
The Income Portfolio – The goal of an income portfolio is to generate positive cash flow. This includes stocks that pay regular dividends and provide a steady source of income for the investor. An income portfolio can serve as a great supplement to an investor’s salary or retirement income.
The Speculative Portfolio
This portfolio is also tailored to an investor with a high-risk tolerance.
The Hybrid Portfolio – The hybrid portfolio, as the name implies, is a combination of different assets. This portfolio encourages diversification and provides the investor with a diversified portfolio which can include stocks, mutual funds, bonds, commodities, real estate, and even art. This portfolio category comes with the advantage of flexibility for the investor; it also reduces the negative impact of losses from one asset class.
How To Build An Investment Portfolio
FBNQuest says building an investment portfolio can seem like an uphill task, but it does not have to be. The first step is to identify your financial goals, this will determine if your money should go into short-term or long-term investments. It will also predict what kind of portfolio would be best suited to your needs. A portfolio tailored towards retirement will be different from one that is intended to provide income within the next five years. It is also important to assess your risk tolerance. Once this is completed, you would need to honestly examine your investing skills, establish whether you can build a portfolio yourself or would require the support of a financial adviser.
The next step is to decide on asset allocation. It is advisable to seek the help of a professional for this stage of the process.