Investment portfolio is a very familiar term among investors. In it will be seen where you allocate money in investing. This portfolio also contains a collection of stocks, bonds, mutual funds and various other instruments.
In addition, the portfolio is also one of the considerations in assessing the investment instruments you have. Then how to build a good investment portfolio for novice investors? Let’s find the answer in the following article.
Understanding Investment Portfolio
An investment portfolio is a collection of investment assets belonging to individuals, financial institutions, companies and investment managers. The contents of this portfolio include the composition of investors’ stocks, bonds, mutual funds, cash, or commodities.
The assets stored in it can be in the form of real estate, works of art, jewelry or other forms of investment that can bring profits in the future.
How to Create a Good Portfolio
In making an investment portfolio, there are several strategies that must be applied to minimize risk while increasing profits.
1. Portfolio Diversification
Diversification is an investor’s strategy to optimize returns and minimize risk by placing investments in more than one instrument, both stocks and non-shares.
In portfolio diversification, it’s a good idea to use liquid investment products, such as mutual funds, money markets, letters of deposit, and gold. The goal is to make it easier to liquidate.
2. Investment Objectives and Term
Before designing a portfolio, make sure in advance what your investment goals are, for example for children’s college fees. This way, you can determine the required timeframe. After these 2 elements are met, it’s time for you to choose the right investment product.
3. Understand Your Risk Profile Risk profile is how big an investor’s ability to bear investment risk. There are 3 types of risk profiles, namely conservative, moderate, and aggressive. Conservative types tend to look for products with the least risk.
Moderate investors can tolerate moderate risk and volatile prices. While aggressive has a high risk tolerance because it is oriented towards large returns. Usually the greater the return, the higher the risk level.
4. Balance Risk and Return
It is necessary to balance risk and return, especially if you own various types of stocks. The trick is to combine stocks with stable prices and stocks whose prices have the potential to continue to rise. So, the losses that occur can be covered using the profits from other stocks.
5. Adjusting Capital Before investing,
You need to allocate capital carefully. Especially if you are a novice investor and still need adaptation. Adjust the value and investment instruments with the capital you have, also make sure your daily needs are guaranteed.
6. Determine Portfolio Composition
After knowing the risk profile, determine the right portfolio composition. If you have a conservative risk profile, then you can use the distribution of 50% income portfolio and 50% growth portfolio.
If you are an investor with a moderate risk profile, it is highly recommended to use a composition of 50% value portfolio and 50% growth portfolio. Meanwhile, investors with an aggressive risk profile would be more suitable if they focused on compiling a composition of 80% value portfolio and 20% growth portfolio.
Choose the Type of Long-Term Investment
In compiling an investment portfolio, it is better to use long-term investment types such as:
Choose the type of stock that suits your risk profile and monitor it regularly.
2. Mutual Funds
This investment is cheaper and easier because it is managed by an investment manager so it is suitable for use in the long term.
Before choosing a bond, pay attention to the type of ranking, interest rate, and tempo so that it is profitable for the long term.
Perform Regular Evaluation
Profits and losses in investment are influenced by various factors, such as finance, risk and so on. Therefore, you need to carry out regular evaluations and adjustments to your investment portfolio if your investor profile is no longer suitable. Perform this evaluation periodically to minimize losses.
Types of Portfolio in Stocks
For those of you who are interested in investing in stocks, there are several types of examples of investment portfolios in these instruments. Among them are.
Portfolio income carries little risk and is usually chosen by investors to seek regular income from stocks. This portfolio focuses more on securing regular income in the form of dividends distributed by the company, rather than capital gains or profits from the sale of shares.
Value portfolios are usually created by investors by buying shares at a lower price than other stocks from the same industry (undervalued stock). These shares will be held until investors find a higher value. Generally, the value portfolio has a high risk because the stock price is more volatile.
The growth portfolio focuses on the growth of investment assets using the principle of high risk, high return. Usually, this type of portfolio is taken by investors with a moderate risk profile. The growth portfolio is also widely used in industries that are developing and have bright prospects.