Navigating the investment world as a new investor can be rather hard. Especially when you have no idea where to begin. In this article, we are going to look at how you can build an investment portfolio. Let’s dive in.
What is an investment portfolio?
An investment portfolio is a set of assets owned by an investor.
Some investments include stocks/shares, bonds, real estate, etc.
Why create an investment set,
- Diversification – Creating an investment portfolio with various asset classes will create diversification hence spread the risk/
- Source of passive income. – Having various asset classes in your list of investments will serve as a source of passive income. For example, shares give the investor dividends.
- Financial freedom – Once the passive income from the various asset classes exceeds your monthly expenses it can be said that you have achieved financial freedom. For example, an investment portfolio worth 10 million giving you a 10% annual return would equate to around sh100,000 per month.
- Retirement plan – Once your investment returns exceed your monthly expenses, you’re free to retire. Remember retirement doesn’t have to be due to age but rather, a number.
Features of a good investment portfolio
- Well diversified – so as to preserve your wealth by spreading the risk.
- Liquidity – That is how quickly you can convert your assets into cash. For example, between land and money market funds.
How to build an investment set
Prep
- Build your emergency fund account – This is a savings account with 3 to 6 months’ worth of living expenses
- Pay off debt. – This can go hand in hand with building your emergency fund
- Start with investments that you understand,
Building the investment portfolio
- Know your investment objective/goal
- Understand your risk tolerance. High-risk high reward and vice versa
- Pick the various asset classes you’d like in your investment list/set
- Know your time horizon – e.g. if you are 25 years and the goal is to build your retirement plan for when you’ll be 65 your time horizon then is 40 years
Lastly, remember that building an investment portfolio is a long-term activity. And it will change depending on the season you are in. Do not change the goal rather change the asset allocation.
