Nowadays, people have understood the significance of investing.
They are well aware of the benefits of investment eventually.
Investment is a key to achieve your financial goals, prepare of old age, make certain dreams true and achieve financial stability.
Many tutorials and online courses have helped people understand the concept of investment as well.
But little do people know that the first step towards a successful investment journey is building an investment portfolio.
Your investment portfolio should be well maintained and should go well with your risk tolerance and financial objectives.
To have proper alignment between your objective and your portfolio, you should pay enough attention and care towards your investing behaviour.
Here is some simple guidelines to help you build your investment portfolio:
You should be fully aware about why you are starting your investment journey.
You should set your objectives to keep you motivated. If the objective is not luring enough, you might lose interest and ruin your investment portfolio as well as money.
It is important to stay motivated. So, ask yourself why am I stepping in this market?
Why am I looking forwards to maximize my wealth and take all these risks?
A person can have any number of goals in their life and mere salary might not make all these dreams come true.
You can dream about buying a house, about travelling around the world, retirement, buying that car or anything and depend on your investing portfolio for it.
So, set an objective and next you will need to do will be to set a time.
A person can have short-term goals like travelling to a certain country. Or a long-term goal such as buying that beautiful house.
Putting a time horizon and setting an amount is the most important step towards building your portfolio.
You need to set a par amount of your objective so that you can focus on devising that amount from your investments.
Different types of goals demand money as per their size. Your retirement might want you to make 1 crore or your house might ask you to make 70 lakh.
In the same way, you might set 5 lakh for your higher education and as such.
Therefore, setting objective, time horizon and number (amount) to your objective is the first step towards making your investment portfolio.
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The next most important thing to consider in investing is to ascertain your risk tolerance. You should be aware about how much risk you can tolerate.
Some people can have a high-risk appetite while others cannot take risks at all.
However, when you are in stock market you need to tolerate risk to some degree. That is because without risk you won’t be able to yield any revenue or capital gain at all.
The higher the risk is the higher the revenue will be.
Taking risk simply means that how much money you can afford to lose. Market volatility can make you lose all of your invested money.
This is why you should invest only that amount which will not ruin your financial and mental health.
There are some types of investors that are ready to play it wild and be aggressive with their money. They risk their good money and lose it all sometimes or gain a big return other times.
But some investors are much satisfied with a fixed return and do not want to expose their money to any type of risk at all. And some investors go on taking risk and holding back at times.
The nature of your risk tolerance can depend upon several factors. Your financial position and responsibilities play the most important role on such occasions.
This is also how people choose the instruments of their investment.
High-risk appetite investors are mainly focused towards equity and stocks. These investment options can expose your money to high or moderate risk and yields equally high revenue.
Low-risk appetite people will choose Fixed Deposits or Recurring Deposits or other such government investment options. Bonds and debt mutual funds are considered a much safer option.
But this does not mean that you should avoid equities completely. An investor should have at least moderate risk appetite.
Good knowledge and experience can help you understand the nature of risk and save your money from volatility of market.
A person should invest in equities and bonds both. This helps to diversify the risk and returns and make a strong investment portfolio.
Risk and goals:
Now that you have set your objective, time horizon and amount and know how much risk you can tolerate, it’s time to start working on it.
You need to match your goals and risk and choose instruments of investment in such proportion.
Suppose you plan to buy a car. The car might cost anywhere near 50 lakh.
If you invest in equities, you might be able to pool this money sooner. But you will need to have risk tolerance.
If you want to play on the safe side, you can invest in debt funds or PPF. The risk will be low, but you will have to invest a large amount of money over a long period of time.
The bottom line
To create your investment portfolio, you should measure your life goal and risk tolerance carefully and then choose the best investing option.