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How to Build a Profitable Investment Portfolio

How to Build a Profitable Investment Portfolio 1

The economy is booming. In fact, the stock market keeps setting new records nearly every day. This is great news for investors.

There’s never been a better time to take advantage of the activity on Wall Street. And the key to getting rich in stocks is to build a strong investment portfolio.

No matter if you are a newbie to stocks or an old pro, there’s plenty of opportunity for everyone. In this article, we take a look at some tips for how to put together the best personal finance portfolio possible.

Creating an investment portfolio can seem intimidating, but there are steps that you can take to help you target strong returns and manage risks.

Keep reading to learn how to take your investment skills to the next level.

Define Your Goals

When it comes to building wealth, the best way to develop your investment strategy is to take the time to define your goals. After all, looking for short-term gains compared to focusing on long-term growth requires very different types of thinking.

The stock market is a very volatile establishment, thus you need to be strategic in how you approach your allocation of funds. Investors who are in it for the long haul typically don’t need to focus on stocks that are making a big splash yet are riskier investments.

Understanding your goals is important. Whether you hire a broker or choose to proceed on your own, having clearly defined goals help you develop a road map for how to move forward with your investment activities month to month and year to year.

Understand the Types of Investments

It’s important to understand that not all investment opportunities are created equal. There are a wide variety of asset classes and investment vehicles available to choose from.

Many investors prefer to put their money in a pool to be managed by an investment professional in order to minimize risk, while others choose to trust their own instincts and invest in individual stocks and bonds.

There are advantages and disadvantages to both methods. For example, fund managers charge fees and yet these type of managed funds are cheaper than buying and selling yourself using an investment platform. Proceeding on your own may save cash in the short-run, but you’ll risk increased exposure.

Diversify

Another important aspect of building a strong investment portfolio is to be as diversified as possible. This is because different sectors of the market rise and fall on a consistent basis.

Diversification allows you to take risks and be aggressive without having to worry about losing all your money if a certain block of stocks experiences a temporary dip.

As mentioned earlier, the market tends to be volatile and can react to a bit of news, a change in the weather, or even a trend that seems to be impacting consumer confidence.

Diversifying your money is a smart move and a basic strategy that any wise investor uses to protect themselves from being overly optimistic or simply misreading the market.

Understand Growth vs Income

When it comes to understanding growth vs income, we need to revisit your investment goals for a moment.

Try to keep in mind that everyone has a different strategy for growing their money. Conservative investments typically generate positive, slow growth over a long period of time, yet won’t make you rich in the short-term. And aggressive investments can generate massive returns overnight, and yet you risk losing big as the market rises and drops from one day to the next.

Growth investing is all about playing the long game. The goal is to grow your money steadily and consistently over a number of decades and to use time as your primary tool for building wealth.

Income investing is more focused on using the market as your source of income in the present and requires taking bigger risks that can pay off today rather than years down the road.

Go Big and Small

We’ve already briefly discussed the idea of diversification. One facet of this strategy of how to build an investment portfolio is to find the right balance of exposure.

You’ll need to be careful about stuffing your portfolio with too many positions. This is because you might end up paying too many fees. The key is to strike the right balance between smaller individual stocks and a good, diversified multi-asset fund. This allows you to maximize diversification while minimizing charges.

Be Patient

Every day is different. That’s simply the nature of the market. One of the keys to being a good investor is to take emotion out of the process.

Some days you’ll find yourself on pins and needles watching the market fluctuate. When the market drops, you’ll be tempted to get out before you lose your shirt. A wiser strategy is to walk away and try to ignore short-term trends as much as possible.

After all, today might look grim, but tomorrow everything could turn around and you would have experienced tremendous anxiety for nothing. So keep your eyes on the prize and simply understand that you’ll ultimately be rewarded for your patience.

Control Your Anxiety

Again, we encourage you to be patient and keep your anxiety to a minimum. The more anxious you are, the more miserable your experience in the market will be. Control what you can control, and then let go of the rest.

Risk vs Reward

Investing in the market ultimately boils down to risk vs reward. Once again, this goes back to goals. Building your portfolio should be directly connected to how aggressively you intend to generate wealth. Short-term rewards require greater risk, and lowering risk requires patience and slow growth.

Invest in What You Know

The stock market offers a wide variety of investment opportunities. But investing in companies that you don’t understand can be risky because you won’t be as equipped to analyze them. Sticking to what you know gives you the power to make better judgments and to move with confidence.

Develop a Personal Advisory Board

Here is a tip that everyone can and should take to heart. Creating a group of trusted advisors is a great way to fine-tune your decision-making process.

We recommend building relationships with people with expertise in specific areas, long-term investing experience, and who’s perspective you know you can trust.

Having a group of trusted advisors is really an invaluable asset that will help you make the best decisions possible and will also help keep your personal emotion out of the process.

Don’t be Afraid to Change Your Strategy

Many investors tend to be stubborn and refuse to change direction when things aren’t working. This is a bad idea and can lead to devastating results.

It’s one thing to stick to your guns during challenging times, but it’s altogether different to refuse to acknowledge that you might be heading down the wrong path.

Keep in mind that the stock market is unpredictable, and so you need to remain flexible in your decision-making. Never be precious about your investments. The ability to adjust your investment strategy can make the different between staying afloat or sinking like a stone.

Consult a Professional Broker

Modern investors have more tools available to them than ever before. Online resources provide a wealth of information and advice that make the process incredibly easy. Thus it’s tempting for an individual investor to feel like they have a better grasp of the market than they actually do.

Professional brokers live and breathe the market and are trained to understand every nuance of the industry. This makes them an extremely valuable asset for building a strong portfolio.

Many people prefer to avoid brokers’ fee and pursue the market on their own, but ultimately those fees are a small price to pay for seasoned advice from someone with the knowledge and insight to remove a lot of inherent anxiety from the investment process.

If you’re interested in consulting with a professional broker, be sure to check out Christopher Sarofim.

Research, Research, Research

Picking stocks should never be reduced to a guessing game. The more time you put into your investments the better. The Internet offers an incredible wealth of tools to help understand the moves and fluctuations of the market, as well as ways to study individual stocks that you’re interested in.

Always be Learning

The minute you stop learning, you’re in trouble. This is true in general and is especially true when it comes to building a strong investment portfolio. Always be learning and expanding your understanding of the market and finding ways to reduce risk while maximizing gains.

Remember to Have Fun

Investing can be scary. After all, you’re risking your hard-earned money. But try to remember that having fun with the investment process actually works to your favor. Anxiety is not your friend. Learn to enjoy the process and you’ll discover that you actually make better decisions and grow your money faster.

Great Tips for Building a Strong Investment Portfolio

Building your investment portfolio can be a source of anxiety. But it doesn’t have to be. The key is to educate yourself, and thus take the guesswork out of your investment decisions. The tips contained in this article can help.

Be sure to take a look at our website for more investment-related resources.

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