How to Build Your Portfolio One Small Investment at a Time24.12.2018
Young and first-time investors seem to know that having a strong portfolio is good, but few have any idea of how to go about it. So let’s take a look at how a good, diversified and robust portfolio can be built by choosing the right asset allocation and taking the right decisions – just one step at a time.
For far too long, investing has had a reputation of being something very complicated and only feasible by a small portion of society. Today, that is very far from reality. With the advancement of technology and the vast amounts of information available on social media and online, there has never been an easier time to start investing than right now.
So here are a few points to remember.
Clean the Tank Before You Add Anything to It
Although investing has become easier than ever, that doesn’t mean you should blindly get into it. Like everything else, a certain amount of caution is advised.
Before you start investing, it’s very important to ensure all your debts are fully paid off and that you have a positive cash flow. Not doing this can get you in an uncomfortable financial situation that you could have easily avoided.
Remember: Your Investments Follow Your Savings
Once you have your debts and loans paid off, your main focus should be to put aside money especially for investment purposes. The goal here is to save an amount of money that you are comfortable investing – apart from your regular savings.
This means you are comfortable with the potential gains and losses you can make with the amount you have saved up for this one purpose. Also, always ensure you save an amount slightly higher than what you plan to invest. This way, you can withstand the odd bad investment, in case you ever make one.
Invest in What You Understand
Often, people tend to fall for quick money-making schemes and investments that promise fast – and unrealistic – returns. This is one of the downsides of the ease of access given by social media and the internet: there is also a lot of negative or false information out there. Rule of thumb: if it looks too good to be true, it probably is.
Instead, silence the noise and focus on what you understand. Rather than chasing quick returns, invest in companies you understand and whose products you are familiar with. As Warren Buffett said: “Never invest in a business you cannot understand.” When buying stocks, limit yourself to companies or businesses you comprehend. Diversifying your portfolio is recommended, but don’t spread yourself too thin either. Four or five stocks in different industries is more than enough. When in doubt, always consult an expert.
If you are not comfortable with stocks as investment vehicles, there are many other options you can consider. Click here to know more.
So, you see, investing is not as difficult as it’s portrayed to be. With simple steps and the right knowledge, you can start today and get right onto building a robust portfolio in no time.