Before there is any talk on an investment portfolio, let’s lays a foundation on investment. Investing has always been one of the most talked about financial topics from passive to active investing. Most financial analysts will even give examples of world-renowned investors like Warren Buffet; Oracle of Omaha, on why investing is important. This topic has never been more important than it is now when economies of countries are facing hard times. Purchasing power is also fast declining and inflation is dealing with the finances of individuals.
In a difficult economic period like this; the idea of keeping aside extra money for investments might look like a hard task. Even with this, financial security is still important, and planning for the future is an essential part of this journey.
What is an Investment Portfolio?
An investment portfolio is a collection of financial investment assets and can include investments like; stocks, mutual funds, commodities, cash and cash equivalents, including exchange-traded funds (ETFs) and closed-end funds. Think of an investment portfolio as more of a concept than a physical space. In contrast to the idea of many, an investment portfolio does not only comprise stocks, bonds, and cash but also a wide range of assets from real estate to private investments.
You can either decide to manage your investment portfolio yourself, or you may allow; a money manager, financial advisor, or other investment professionals to manage your portfolio.
Key takeaways
- A portfolio is a collection of financial investments like stocks, bonds, commodities, and cash. It also includes different types of assets including real estate, gold, and art collectibles.
- An individual’s risk tolerance, investment goals, and road map, time horizon are all critical factors to consider when building an investment portfolio.
- To help you, consider setting up an automatic transfer or withdrawal with a specific figure at a specific date from your paycheck to your savings account.
How to Save to Start an Investment Portfolio
1. Develop a Plan
You should not invest a dime of your money in an investment venture if you don’t have a plan for your money. The Investment Policy Statement (IPS) is a very useful resource in this stage, as it helps you organize your funds. Your IPS should address the purpose of your investment which can include, funding your retirement, buying a house, or paying for a child’s education.
This section of the IPS will determine the number of returns you want on your investment, and how soon you need it. The Investment Policy Statement should also include your risk tolerance. If your goals are short-term, you should not consider volatile investments. For long-term investors, you might go for riskier investments while having the period to recover from the downturns of each investment product.
2. Determine Your Initial Investment
In most cases, people shy away from an investment portfolio because they believe they need huge funds to get started. You can start a thriving portfolio with an initial investment of just $1,000, the clause however is that you’ll have to make monthly commitments after this, say $100 per month. There are many ways to get funds for your initial investment. Look at your monthly budget, and cut down on non-essential expenditures like shopping or dining out. Take the money realized from this cut-down and save it in a separate interest-bearing savings account. Determine an amount that will go to this account either weekly or monthly. You can also set up automatic withdrawals or transfers from your checking account to your savings account.
3. Find Budget-Friendly Investment Products
Since you are new to the investing space, and you plan to start with limited funds; sourcing for budget-friendly investment products will help your investing journey. Benjamin Curry, Retirement Investor and Advisor for Forbes Advisor recommends starting with a Robo-advisor. A Robo-advisor is an automated investing platform that helps you invest your money in pre-made and diversified portfolios that are customized for your risk tolerance level and personal financial goals.
4. Protect Your Money
Once you have finally saved enough funds to begin your initial investment, losing your money to a fraudulent deal is not a good idea. To avoid a situation like this, a professional financial advisor is the best person to help you navigate your new investment portfolio.
There are several types of frauds in the investment market targeting new investors. Investors both new and seasoned should never give their money to anyone without proper research and verification processes. The Security Exchange Commission (SEC), The Nigeria Stock Exchange has resources where investors can check a company’s financial statements and activities before investing. For foreign investments, the U.S Securities and Exchange Commission’s Electronic Data Gathering Analysis and Retrieval (EDGAR) will provide a list of licensed securities salespersons.