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Five keys to building your first investment portfolio

A n investment portfolio is a collection of financial assets, such as stocks and bonds, with the goal of achieving an overall profit. When building a portfolio, consider your investment goals and risk profile, as well as strategies and tactics for asset selection. It's important to continually monitor and adjust the portfolio to ensure it meets your goals.

Introduction

Surely you already have in mind what we are talking about when we mention investment alternatives such as fixed-term deposits, bonds, and stocks and the advantages and disadvantages of each one, but what if you wanted to distribute your money among them? This is where what is known in finance as an investment portfolio comes in: we could say that it is a "basket of financial assets" such as stocks, bonds, fixed-term deposits, money, etc., with the aim of obtaining an overall profit.

Examples

Each financial asset has a weight within the total assets, we will show it to you with two simple examples of investment portfolios:

Portfolio 1: - Stocks: 30% - Bonds: 50% - Fixed-term deposits: 20%

Portfolio 2: - Stocks: 60% - Bonds: 20% - Fixed-term deposits: 20%

Seeing these two examples, in the case of portfolio 1, we can say that it is more conservative than portfolio 2, having a lower percentage of stocks (as they are riskier than other assets). In turn, it has a higher percentage of fixed-term deposits whose profitability is usually more stable and predictable.

Building Your Investment Portfolio

The combination of assets is infinite, that is why we will tell you five keys to keep in mind when building your first investment portfolio:

  1. The end justifies the means: Before starting to build your investment portfolio, you must always think about why you are investing: for the holidays next year? To pay for your child's university? To have a better retirement? Having a clear goal will allow you to choose the portfolio that best suits your investment horizon (when you need to get the funds).

  2. Know your risk profile: You must understand what level of risk you are willing to assume to achieve your goal. As we always say: "the most important thing is that you can sleep peacefully at night." Based on that, you will understand what portfolio is the most suitable for you.

  3. The strategy: the selection of asset types: This is where you put on the training pants of your favorite football coach and design the strategy of your portfolio. Remember to keep in mind what you want to use your money for and in what period you will need it. Following the previous example, it is where you define what percentage you will allocate to asset types such as stocks, bonds, fixed-term deposits, etc.

  4. The tactic: the selection of assets: You have designed the skeleton of your portfolio, that is, what percentage of stocks, bonds, etc. you will use. It is time to choose which stocks, bonds and other financial assets are the right ones according to market conditions (or what you expect from the market). These assets are those that finally define the performance of your investment portfolio and those that you must measure to know if you fulfilled what you were projecting.

Continuing with the previous example, it would be to choose which assets to form the portfolio, such as:

  • Stocks: Apple, Amazon, Google, etc.
  • Bonds: US Treasury Bonds, etc.
  • Fixed-term deposits: CDT at Banco ABC, etc.

This process will be repeated over time, as you must monitor the performance of your portfolio and make changes as necessary. It is important to regularly review your portfolio to ensure that it still aligns with your investment goals and risk tolerance.

Remember that building an investment portfolio is a process that requires careful planning and discipline. By following these guidelines, you can create a portfolio that is well-diversified and that helps you achieve your financial goals.

Good luck on your investment journey!


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