The Forex and stock markets offer a great variety of instruments that are suitable for investment. You can buy shares of large corporations (BMW, Apple or Tesla), or invest in less popular among the general public, but more advanced instruments, such as ETFs.
But how to find the right sector for investment? This question pops up in the minds of many novice investors. To ensure that your investment generates profit, it is important to know how to build a successful investment portfolio.
“Why do I need an investment portfolio at all?” – you may wonder. “Isn’t it better to invest everything in the shares of one company, say, Amazon, and just wait until the money rains down on you?” The answer is no, it isn’t. And here’s why. Suppose, you hold equities of 10 companies in your portfolio, shares of 3 companies went down and turned negative. The income you receive from the remaining 7 should cover all losses and balance out your portfolio, so your investment will be generating profits and you’ll be in surplus. See? Having a well-balanced portfolio reduces risks and increases your chances of success.
Investment portfolio style
The first thing you should explore your options, study all the available assets. When picking out your investments, consider your risk tolerance and whether you prefer a more conservative or a more aggressive investment approach. You can choose safer assets with low volatility and exposure to risk (stocks) and high-risk, volatile instruments (oil). In any case, your portfolio should be diverse – include various kinds of asset classes. It can be cryptocurrency, metals, and stocks. An ideal portfolio should be as diversified as possible. Here’s a tip for you – it’s better to invest in those tools that you understand and could independently control.
Asset Allocation
The second stage of investing is filling your portfolio with assets in the right proportions and decide, how much you would like to invest in each particular instrument.
- Suppose that you invested 70% of the money in a promising, well-established, reputable company, and the remaining 30% you allocated among the other 5-6 companies. Is this the right diversification approach? Hardly. Even if you have 6-7 assets in your portfolio, your risks will be quite high, since 70% of your money will be “in one basket”. And we all know the rule: “Don’t put all your eggs in one basket.”
- We are not saying that you have to invest “equally”. Allocate your assets, depending on the characteristics of the asset. There’s no need to invest huge amounts of money in young startups or cryptocurrency that already carry a high level of risk.
Filling your portfolio
We suggest investing in the stock market primarily. You’ll be generating more gain in the long run, since most companies are constantly growing developing, and it is hard to imagine that a giant like IBM or Adobe go out of business. Yes, they may have a couple of weak quarterly reports, but after a while, they’ll catch up anyway.
To reduce risks, most of your portfolio (70%) should be made of conservative instruments. The remaining 30% should be allocated among risky assets.
For starters, we recommend building a small portfolio consisting of 3-5 instruments that you know the best. You should not start with aggressive assets, because a lack of experience can cause serious losses here.
As you gain more experience, you can expand your portfolio and supplement it with more risky assets. For starters, you can include Amazon, Apple, Adobe, Disney, MTC, and Facebook. Then, try adding Tesla, oil, Bitcoin a bit later, and then proceed based on your preferences.
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