Introduction
Becoming successful at investing is very much achievable if you do things right. One of the basic activities you will be carrying out as an investor is constructing a portfolio. The act of building a portfolio is often thought to be the exclusive preserve of large investment firms, but that is not the case.
As a retail or individual investor, you can set out to build a winning portfolio too.
Building a Successful Portfolio
While there are several strategies to go about this, many can be described as principles or basic rules to adhere to on the way to coming up with a portfolio that works for you. These rules include:
- Determine your investment goals and investing interests
One of the key steps to take on the way to building a portfolio that works for you is to build a portfolio that is “personal” to you, and the best way to start with this is to determine what you expect to achieve from your investing.
Since you are in the game of investing to make profits, an important aspect of building a successful portfolio is deciding how much you think you can reasonably make within a certain amount of time. At the same time, you must know that nothing is guaranteed in investing.
Similarly, you may need to determine your investment interests. For instance, if you strongly believe in emerging technologies, you may want to invest in the stocks of companies facilitating them.
- Determine your Risks
The other part of the puzzle is to determine your risks. That is, you have to decide the amount of money you are willing to risk to lose and the rate at which you are comfortable seeing the loss happen. This is because all investments carry varying degrees of risk.
- Research
You can then go on to research those available assets that fit your investment goals and interests and that also fall into your risk tolerance bracket. An amazing tool that can help you conduct this research stress-free is Morningstar which contains highly valuable and detailed information on all asset classes.
- Diversify
One of the basic tenets in finance and investing is diversification. Concentrating your funds in one or very few investments or securities is generally not sound investing. Everyone who knows this will recommend that you vary your capital across a number of assets.
- Review
Upon researching using Morningstar, you should narrow down your choices to a few, but ensure they are well diversified. The process does not stop at the point of committing capital. The best way to win at investing is to continually check your already-built portfolio to ensure it is performing optimally.
It is, however, important that you don’t do this too often, as it can make you close out some investments that are not doing well in the short term, but which will eventually generate excellent returns later. You should only sell a poorly performing asset after a considerable time lapse.
Becoming very successful at building a profitable portfolio does not happen overnight. It will require diligent exercise over time.