Tips to Help You Develop a Healthy Investment Portfolio – Overview
Around 53% of people living in America feel anxious about their financial future. Well, they did in 2018 – there’s a high likelihood that with the pandemic outbreak this year, the figures have jumped through the roof. While the current economic climate is looking a little scary, developing your financial literacy can help you budget, make the most of the money you earn, and get back on track after the recession.
Building an investment portfolio is a superb way to grow your savings, work towards financial independence, and plan for a comfortable retirement. No matter whether you’re 15 or 65, there are steps you can take to improve your financial situation. We have collated 4 tips to help you develop a healthy investment portfolio.
Tips to Help You Develop a Healthy Investment Portfolio
Diversify Your Investments
One of the most important rules for any investment portfolio is to diversify. If you have been investing in commercial real estate, for example, you might consider purchasing a residential investment property or buying some shares. Even if you aren’t confident in your knowledge of the stock market, you can put some money into Exchange Trading Funds (EFTs), which allow you to invest in a range of companies at once.
For example, the S&P 500 represents an index of the top performing 505 US stocks. The significant advantage of diversification is that each investment opportunity will have unique risks and market pressures. By spreading your money into multiple different areas, any dip in one investment should be supported by gains across the others.
Check the Fee Structures
No matter where you decide to invest, you should always do your research. Banks, EFTs, stockbrokers, and superannuation funds all charge fees for their services. There is a wide variation to the fee structures that may apply, so it is vital to check the fine print and compare your options.
Know Your Risk Profile
You may have come across the concept of a risk profile in relation to your retirement fund. If you have no idea what your profile is, then it is worth taking a quick look. In essence, each person has a certain comfort level when it comes to taking financial risks. This level is often linked to their age as well as their personality.
High-risk investments can result in high levels of growth but also may result in losses. Lower risk investments are unlikely to make as much money but are “safer” options. If you are risk-averse, you should look to purchase bonds or place your money in a high-interest savings account. Property, shares, and commodities are all considered to be higher risk options, with the chance of big gains for those who can tolerate the uncertainty.
Be Conscious Your Liquidity Needs
Your liquidity means how quickly you could access your money in cash if you needed it. For example, if you have invested in real estate and suddenly needed a significant amount of money fast, you might find yourself in a tough spot. It takes time to sell your property or to borrow against the equity that you have.
Conversely, selling shares is a reasonably quick and easy process, but having unexpected expenses crop up may mean you have to sell when the market isn’t ideal. Liquidity is yet another reason why it’s so important to have a diverse portfolio. You can weigh up the positives and disadvantages of liquidating each option and go with the one that will cause the least damage.
Tips to Help You Develop a Healthy Investment Portfolio – Summary
The earlier you start to build an investment portfolio, the more you will learn, and the more money you will make. So, get researching and start investing!