How To Build An Investment Portfolio (2024)

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Successful investing means working towards both short-term and long-term financial goals. But building an investment portfolio to reach both types of goals can be a challenging task.

Whether you’re trying to choose a financial advisor or taking a DIY approach, the following six-step checklist can help you create and maintain an investment portfolio for any goals you may have.

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What Is an Investment Portfolio?

An investment portfolio is a collection of assets you buy or deposit money into to generate income or capital appreciation.

Assets include cash on deposit in a money market account or certificates of deposit, real estate or anything you can purchase with a brokerage account—stocks, exchange-traded funds, mutual funds, bonds, crypto and more.

Investment portfolios may involve one or several types of accounts. For instance, your employer’s 401(k) plan is one type. But as you add other goals—like saving for a home down payment or for college—you’ll likely add more investment accounts to your portfolio. Your complete portfolio might include a high-yield savings account and a 529 plan.

It’s important to consider how each type of investment account works separately and in conjunction with each other. Don’t put all your eggs in one basket, because without realizing it, you might wind up investing in the same assets in multiple accounts. As you’re about to discover, not all investments align with all goals—or investors.

How to Build an Investment Portfolio in Six Steps

Building an investment portfolio can be broken down into the following simple steps. Each step sets you up for success with the next step. Ultimately, you’ll have a better chance of building a portfolio that aligns with your investment style and the goals you want to achieve.

1. Start with Your Goals and Time Horizon

When building an investment portfolio, the first step is to make a list of your financial goals.

“Without an end goal, why you want to invest doesn’t really matter,” says Brian Robinson, a certified financial planner (CFP) at Sharpepoint.

Once you have your goals laid out, sort them by time horizon, which is nothing more than how long you’ll need to hold the investments until you require the money.

  • Short-term goals are those where you’ll need the money within 12 months.
  • Medium-term goals take between one and five years to accomplish.
  • Long-term goals take more than five years to reach.

For example, if you’re saving for retirement 30 years from now but need to buy a new car this year, you have one long-term and one short-term goal.

2. Understand Your Risk Tolerance

Now that you know when you need the money for each goal, you can decide your risk tolerance—how much you’re willing to lose in the short term to achieve each goal.

“The longer the time horizon, the more aggressive you can be,” says Denis Poljak, a CFP with Poljak Group Wealth Management, since you have more time to recoup short-term losses. He says short-term goals generally require a more conservative strategy since you likely can’t afford to lose what you’ve saved.

Risk tolerance works hand-in-hand with time horizon. For instance, if you take on too little risk when saving for retirement 30 years away, you could fall short of your savings goal. But if you’re five years from retirement, taking on too much risk could mean losing money without a chance to make up the losses.

Your tolerance for risk is ultimately a balance between what’s required to reach your goals and how comfortable you are with market swings.

3. Match Your Account Type with Your Goals

Before you pick investments, you need a place to put them. That’s why you want to build an investment portfolio using an account that aligns with your investment goals.

  • Tax-advantaged accounts like IRAs and 401(k)s work best for long-term, retirement-related goals and can accommodate any risk tolerance level.
  • Taxable online brokerage accounts work well for mid- to long-term goals where you want more upside potential than a lower-risk deposit account.
  • Deposit accounts like CDs, money market accounts and high-yield savings accounts work best for short-term goals where you want a bit of growth but can’t afford to lose money.

4. Select Investments

Now it’s time to put your goals, time horizon and risk tolerance to work as you select investments to reach your goals.

Stocks

Stocks, also known as equities, are units of ownership in a publicly-held company. You can buy shares of thousands of companies based in the U.S. and abroad. They tend to be a higher-risk investment but also offer a greater chance of growing in value than bonds or cash alternatives.

Bonds

Bonds turn investors into lenders. Buying a bond allows you to lend money to a company, entity or municipality. In exchange, the bond issuer pays you interest on your loan until they repay it in full. Bonds are typically less risky than stocks, but there are also higher-risk bonds like junk bonds.

Funds

If you can’t afford to buy a single bond or share of stock—or simply want to spread out your risk between multiple stocks and bonds—you can invest using exchange-traded funds (ETFs) and mutual funds.

These investments are baskets of securities. When you buy shares, you own a bit of everything in the basket. Your risk will vary depending on the type of fund.

Alternative Investments

If you can dream it, you can invest in it. From precious metals like silver and gold to real estate, cryptocurrencies, hedge funds and even commodities like wheat, there are ways to invest beyond stocks and bonds to diversify your portfolio. Alternative investments are often higher risk than stocks and bonds.

Cash and Cash Alternatives

Investments like CDs, savings accounts and money market funds offer low-risk ways to set aside cash but still earn a (very) modest rate of return.

5. Create Your Asset Allocation and Diversify

After you decide the types of investments you want in your investment portfolio, it’s time to decide how much of each you should buy. While you might be tempted to throw every dime you have into stocks to juice returns, Robinson advises his clients to think differently.

“Making money is great, but how much did you not lose on the way down?” he says.

Asset allocation keeps you from putting all your eggs in one basket and instead helps you divvy up your money in a way where you can enjoy capital appreciation while limiting losses. For example, if you have a high risk tolerance and a 30-year time horizon, you might allocate 90% to stocks and 10% to bonds. Someone with a moderate risk tolerance might choose a portfolio that’s 60% stocks and 40% bonds.

Once you decide on asset allocation, you can diversify your investments within those asset classes. For instance, you might split up your 90% allocation stocks between large- and mid-cap stocks and then diversify stocks across multiple sectors like healthcare, industrials and technology.

To help you get started, you can review popular asset allocation models to help pinpoint your ideal portfolio.

6. Monitor, Rebalance and Adjust

Once you hit “buy,” your investment portfolio still needs ongoing care and attention. That’s why it’s important to monitor and adjust your portfolio regularly.

For example, you might check in on your portfolio twice a year to ensure your asset allocation is still aligned with your goals. You might need to rebalance your holdings if the market has been volatile. If you’re investing through a robo-advisor, many take care of rebalancing for you.

You may also need to adjust your investment strategy as life changes. Getting married or divorced, becoming a parent, receiving an inheritance or nearing retirement are all life events that could necessitate rethinking your current investment strategy. The best investment portfolios grow and thrive like house plants—with regular care, attention and feeding along the way.

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How To Build An Investment Portfolio (2024)

FAQs

How do I create my own investment portfolio? ›

How to Build Your Own Investment Portfolio
  1. Define Your Financial Goal(s) Name It. ...
  2. Design or Modify an Investment Portfolio. Evaluate Your Risk Tolerance. ...
  3. Execute Your Plan. Invest in new funds, rebalance or readjust existing investments to align your portfolio with both your risk tolerance and goals. ...
  4. Maintain the Plan.

What should an investment portfolio consist of? ›

An investment portfolio is a set of financial assets owned by an investor that may include bonds, stocks, currencies, cash and cash equivalents, and commodities. Further, it refers to a group of investments that an investor uses in order to earn a profit while making sure that capital or assets are preserved.

What is the 3 portfolio rule? ›

A three-fund portfolio is an investment strategy that involves holding mutual funds or ETFs that invest in U.S. stocks, international stocks and bonds. The strategy is popular with followers of the late Vanguard founder John Bogle, who valued simplicity in investing and keeping investment costs low.

How to make $1,000 a month investing? ›

Invest in Dividend Stocks

A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.

What should a beginner investment portfolio look like? ›

A well-rounded portfolio may have blue-chip large-caps, more speculative growth stocks to add some pop, and value stocks. There could also be other asset classes included, such as bonds, index funds, cash, and commodities.

How do I make a portfolio for beginners? ›

6 Steps to Building Your Portfolio
  1. Step 1: Establish your investment profile. No two people are exactly alike. ...
  2. Step 2: Allocate assets. ...
  3. Step 3: Decide how to diversify. ...
  4. Step 4: Select investments. ...
  5. Step 5: Consider taxes. ...
  6. Step 6: Monitor your portfolio.
Jan 13, 2024

What is the 5 portfolio rule? ›

In the context of investing, it may also refer to the practice of not allocating more than 5% of a portfolio to any single security—in other words, of not letting any one mutual fund, company stock, or even industrial sector to accumulate to comprise more than 5% of the investor's overall holdings.

How much money do you need to start an investment portfolio? ›

It is possible to start a thriving portfolio with an initial investment of just $1,000, followed by monthly contributions of as little as $100. There are many ways to obtain an initial sum you plan to put toward investments.

What is a good investment portfolio mix? ›

Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.

What is the golden rule of the portfolio? ›

Rule No.

1 is never lose money. Rule No. 2 is never forget Rule No. 1.” The Oracle of Omaha's advice stresses the importance of avoiding loss in your portfolio.

What should my portfolio look like at 55? ›

What Should My Portfolio Look Like at 55? First, evaluate your tolerance for risk at that age and decide how focused on growth you still need to be. Some financial advisors recommend a mix of 60% stocks, 35% fixed income, and 5% cash when an investor is in their 60s.

What are four types of investments that you should always avoid? ›

List four types of investments that you should always avoid.
  • day trading.
  • commodities.
  • goals.
  • futures.

What happens if you invest $1000 a month for 20 years? ›

Investing $1,000 a month for 20 years would leave you with around $687,306. The specific amount you end up with depends on your returns -- the S&P 500 has averaged 10% returns over the last 50 years. The more you invest (and the earlier), the more you can take advantage of compound growth.

What if I invested $500 a month in S&P 500? ›

One way to become a millionaire

Over its history, the S&P 500 has generated an average annual return of 9%, including re-invested dividends. At that rate, even a middle-class income is enough to become a millionaire over time. $500 a month, for example, is less than 10% of the median U.S. household's monthly income.

How to turn $1000 into $10000 in a month? ›

Best Ways To Turn $1,000 Into $10,000
  1. Flip items for profit. ...
  2. Start an online business. ...
  3. Real estate investing. ...
  4. Peer-to-peer lending. ...
  5. Stock investing. ...
  6. Create digital products. ...
  7. Flip domains. ...
  8. Start a blog.
May 22, 2024

How can I make a portfolio of myself? ›

How To Make A Portfolio?
  1. Identify your best work samples. To create a portfolio, identify your best work samples and collate them creatively. ...
  2. Create a contents section. ...
  3. Include your resume. ...
  4. Add a personal statement outlining your professional goals. ...
  5. List out your hard skills and expertise. ...
  6. Attach samples of your best work.
Sep 13, 2023

How to build portfolio with $1,000? ›

Here's how to invest $1,000 and start growing your money today.
  1. Buy an S&P 500 index fund. ...
  2. Buy partial shares in 5 stocks. ...
  3. Put it in an IRA. ...
  4. Get a match in your 401(k) ...
  5. Have a robo-advisor invest for you. ...
  6. Pay down your credit card or other loan. ...
  7. Go super safe with a high-yield savings account. ...
  8. Build up a passive business.
Aug 27, 2024

How do I make an investment portfolio with little money? ›

7 easy ways to start investing with little money
  1. Workplace retirement account. If your investing goal is retirement, you can take part in an employer-sponsored retirement plan. ...
  2. IRA retirement account. ...
  3. Purchase fractional shares of stock. ...
  4. Index funds and ETFs. ...
  5. Savings bonds. ...
  6. Certificate of Deposit (CD)
Jan 22, 2024

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