What are the key considerations when constructing a portfolio?
When it comes to building a complete and effective portfolio, there is plenty to think about and to plan for. Many of the steps you take will be based on your long- and short-term goals. This will differ from one person to the next. However, there are several key steps you’ll need to take to get your portfolio established and building wealth for you and for your future. I have listed the key considerations when constructing a portfolio below:
#1: Know where you are and where you are going
It is important to take stock, so to speak, of where you are. Consider what type of retirement plans and investments you already have (and how well they are doing) as well as any assets you own. Then take a look at where you want to be. It is important to know what you want to save for retirement based on the types of experiences you plan to have once you do retire.
#2: Establish a retirement fund
Perhaps everyone should do this as soon as possible. A retirement fund helps you to structure your financial goals while putting even a small amount of money away each month to cover retirement needs. Doing this now allows plenty of time for your wealth to build, thanks to compounding interest.
#3: Consider your level of risk tolerance
Before you can determine where you want to put your money, you have to realise you have a risk tolerance. This is the amount of risk you are willing to take on. If you are older and nearing retirement, you may not want to take on a lot of risk and put your money on the line. If you are younger, those higher-risk funds can look very good because you have time to recoup any losses. Also consider your personal views and financial stability.
#4: Develop an investment portfolio based on time and risk
Work closely with a financial planner to create a portfolio that addresses your concerns. This includes a combination of stocks, bonds and funds that create the level for risk that is right for you with a return that matches that risk. Your financial planner will indicate investments that may be ideal to you in each of these situations. You’ll want to work on a plan over time, making changes as needed.
#5: Add to your wealth
There are several key steps to portfolios, and not all of them centre around stocks and investments. You’ll also want to build wealth in other means. Don’t use credit cards or high-interest loans as they cut into your earnings and long-term goals. You’ll also want to consider purchasing real estate or other value building assets that help keep you diversified. The key here is not to put all of your money into a specific asset class. By diversifying, you’ll be able to absorb any losses easier and continue on your path to financial freedom.
From time to time, come back to your portfolio to make adjustments. Working with a financial adviser can help to make this easier to do. He or she can monitor your portfolio for changes that could be worrisome or beneficial. You’ll also want to continue to build your wealth over time, investing consistently in your portfolio. The more work you put into it now, the better the long-term goals and outcomes will be for you.
I hope you found my key considerations when constructing a portfolio useful, and remember as an expat expert, I am on hand to help with all of the above and more.
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Mike Coady is an award-winning financial expert and a well-known leader in the financial industry.
Having taken two of his previous firms to Chartered Status in the UK and also achieved the prestigious National IFA of the Year Award – Highly Commended.
Mike is qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Fellow of the Institute of Sales Management (FISM), and a Fellow of the Institute of Directors (FIoD).
Blog published by Mike Coady