Building Your Financial Portfolio Now
You are never too young or old to build a financial portfolio. If anything, you are always at the right time to begin. Building your financial portfolio is less about the numbers and charts and more about understanding what it takes and what to focus on when determining your asset allocation. This post examines some of the basic approaches to building your financial portfolio today.
Identifying your asset allocation
This is most important step to building a portfolio, all other steps hinge on the results gotten from this. Before contracting a financial portfolio manager, this is something you need to carry out for yourself. It involves asking yourself a series of questions:
How long do I have to manage this portfolio? This particular factor focuses primarily on age; a younger individual theoretically has more time to manage a financial portfolio than an older one (though the older individual may want to leave the portfolio to children or wards).
Am I a long term risk taker? Some investments take a while to mature for higher returns, while short-term investments often reap smaller benefits. Individuals with a low risk tolerance ratio will be unable to focus on long term risks. Knowing how much risk you can bear is a key factor to determining what investments to allocate your assets to.
Pick your investments
Once you have determined how you want to allocate your assets, most of your job is done. At this point you can hire a portfolio manager who will bring options that fit into your asset allocation strategy. Remember that whatever stocks or bonds you are picking must fall in line with your risk level. Focus on the bond type and rating as well as maturity period. If you are considering investing in mutual funds or ETFs (Exchange Traded Funds), you should note that you most likely will need to hire a fund manager or register with one.
After identifying your options and allocating assets to them, you should not lean back casually and leave the “money to work for you”, contrary to what anyone says. You need to stay abreast of market movements in case you need to readjust your allocations. Your financial status may also change, as well as your tolerance for risk, and these factors would influence your portfolio weightings.
While you consistently reassess, you may not always be required to rebalance your portfolio. If you have to, consider your strategies before you do so. There are tax as well as market implications to rebalancing your portfolio. For example, selling off a large portion of your equities as a means of rebalancing due to a profitable season may cause you to incur severe income taxes. Research and consult tax analysts before rebalancing.
Putting all your eggs in one basket never did anyone any good, ensure your portfolio is always diversified. A well diversified portfolio protects all your investments from a large portion of risk. Coupled with making necessary and timely adjustments where necessary, you can deftly increase your margin for success and enjoy true financial freedom.