If you are new to investing, building an investment portfolio for yourself can be intimidating. In addition, setting aside funds every month can be challenging when you also have other financial obligations like mortgage repayment and living expenses. To help you start your investing journey on the right foot, here are five steps you can take to build a robust investment portfolio.
Step 1: Use the Dual Approach
A good way to start with for your investment journey is by taking the Dual Approach, because it diversifies your investment portfolio to match your risk appetite — the amount of risk you are willing to take with your investments — and your risk tolerance — your capacity and eagerness to withstand large swings in the value of your investments without panicking and selling at the wrong time.
The Dual Approach is simple; diversify your portfolio with a good mix of assets that provide:
I. a stream of guaranteed, ‘inflation-proof’ income, as well as
II. a stream of potentially higher investment returns
Combining two or more instruments with these traits in your portfolio will set you up for a higher probability of success.
Step 2: Use these four key investment tools
Tool #1: Compound Interest
While having the experts do the hard work on your behalf is certainly a positive, it does not come for free. Unit trust investments will require you to pay an annual fee to the fund manager, the amount of which varies according to their skill. Some unit trusts also charge exit fees, which may make it more difficult to liquidate your investment than had you invested directly. It is important, therefore, to consider these costs when choosing which unit trust you would like to invest in as they differ from product-to-product. To find out more, you are highly encouraged to speak to your financial adviser representative on finding out about these fees.
Another important factor to remember is also that funds are not principal or capital guaranteed. Unlike more conservative asset classes, this means whatever you invest is subjected to risks. You may want to consult your financial adviser representative on this too.
Tool #2: Time Horizon
When you start investing early, you will be able to weather through more risk and generally earn better returns. This makes it possible for you to recover from wrong decisions without affecting your long-term financial goals. Moreover, starting early gives you more flexibility to reach your financial goals.
Tool #3: Knowledge to Invest
Weathering the volatility within global markets can be stressful to new investors. To better equip yourself to manage this, improve your knowledge on investing so that you are more comfortable with market movements and making future plans.
Tool #4: Dollar-Cost averaging
Dollar-cost averaging refers to putting a consistent amount of money into the same investment over time. This strategy involves dividing up the total amount of money you wish to invest into smaller, regular payments over a period of time.
This investment tool helps you:-
● enjoy lower costs
● ride out market downturns
● allows disciplined saving
● reduces the emotional element of investing
● mitigates the risk of bad timing.
Step #3: Manage your risk & plan for more
To minimise unforeseeable risks in your portfolio, risk management is key. Risk management refers to identifying, analysing and mitigating uncertainty in investment decisions.
It is also important to plan for flexibility in mind, just in case. Life is unpredictable, and preparing ahead for extra finances is better than running short when it truly matters.
Step #4: Choose the right partner(s) for your investment journey
Navigating investing on your own can be tricky, so it is always better to partner with someone with the experience to know what to do in any circumstance. Working with a financial adviser can help give you perspective and better understand your investment needs. More so, they give you access to information and guidance that may be difficult to find alone. It can also expose you to the various investment instruments available. Even as you improve your investment knowledge, a financial adviser can provide an alternative perspective and ensure your portfolio is balanced.
Drop me an email to learn more about partnering with one of our consultants on your investment journey!
Step #5: Maintain a balanced portfolio
Too often, the focus is on starting on the journey, but it is equally important to that your investment portfolio continues to stay well-diversified for consistent, long-term growth. Monitor and make changes and adjustments as necessary, as life is not static. Sometimes the situation change and new factors and considerations need to be addressed in order for you to stay the
The purpose of an investment portfolio is to give you financial stability and independence. Setting aside enough savings each month helps you to gain financial discipline and confidence for making decisions on finances and future planning. Smart investing takes your current expenses into consideration while planning for your short- and long-term goals. The most important aspect of building a portfolio is to balance your growth opportunities with your risks.
APEX ADVISORY GROUP
With 9 years’ experience as a financial advisor at IPPFA, Sarah was part of the IPPFA Producer’s club (2014-2020) and the Million Dollar Round Table (2019-2021). As a child, Sarah was taught to manage her money well and this eventually led to her successful career as an outstanding adviser with IPPFA.