Essentials of Putting Together a Financial Portfolio

Research potential investments to create a solid financial portfolio.

Research potential investments to create a solid financial portfolio.

Creating a financial portfolio consists of thoughtful planning to make some money, but also to provide a secure financial future. Take time to figure out your financial goals, how much you can afford in order to take some financial risks and what type of investments fit your needs. You can go it alone when picking investments, but consult a financial advisor you can trust to help make the right decisions.

Time Period

Your investments depend on your goals over a certain time period. You need investments with low risk to protect your portfolio, but as a young investor, you can also afford some risky stocks to take advantage of good returns. High-risk stocks can perform better and faster than conservative stocks, but also pose risks. At a young age, you have a long time to recoup losses if the stock market takes a hit now and then. As you age and get closer to retirement, a portfolio tends to lean more on conservative stocks to help protect your assets. By this time, you can afford to slow down the growth of the value in your portfolio. Your aim when putting together a financial portfolio is to make those great gains early on to build up your portfolio.

Diversify Your Investments

Diversity is the key to long-term investing. A smart financial portfolio includes a wide range of investments, including stocks and bonds that provide some risk with potentially good returns. A diversified portfolio also consists of low-risk, low-return investments, such as money market funds and Treasury bills. Mutual funds contain a wide range of investments across different asset categories. If one investment performs poorly, your portfolio remains strong because other investments in different companies and sectors perform well. Index funds, a type of mutual fund, makes it easier by investing in a particular index, such as the S&P 500, to match the performance of the market. A good mixture of investments provides growth and security.

Asset Allocation

Keeping certain percentages of your portfolio in stocks, bonds and cash, known as asset allocation, depends on your particular needs. How much you want allocated for each asset may involve the investment time frame you have in mind, your income and your financial goals. There may be good periods for stocks or better times for cash. You might want to consider higher positions in gold during uncertain economic periods, for example. You will most likely change your asset allocation as time goes on to take care of your specific needs and goals during different market conditions. A financial professional can help you understand how to balance your portfolio during certain times.

Review and Rebalance

When you have your financial portfolio in order, you still aren’t finished. In fact, your portfolio takes periodic reviewing and rebalancing over time. Market conditions fluctuate over the years, you have changes in your objectives or personal circumstances and certain investments may no longer perform well. You might have to change your asset allocation when stocks are performing better than bonds, calling for a larger emphasis on stock investments, for example. Essentials of a financial portfolio include reviewing your investments every few months or a year and then rebalancing to continually provide growth potential and less risk in your portfolio.

About the Author

Jerry Shaw writes for Spice Marketing and LinkBlaze Marketing. His articles have appeared in Gannett and American Media Inc. publications. He is the author of "The Complete Guide to Trust and Estate Management" from Atlantic Publishing.

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