Building an investment portfolio can seem intimidating to those who are just beginning their investment journey. It can be challenging to set aside sufficient funds each month, while also budgeting for various expenses such as rent, equated monthly instalments (EMIs) for vehicles, and other obligations. However, the earlier you begin investing, the more time there is for your portfolio to mature and grow.
Smart investing takes into account your current expenses while ensuring that you can plan for your short-term and long-term goals. The most important aspect of building a portfolio is to balance growth opportunities with risks. The trick lies in understanding your own risk appetite while building a diversified portfolio.
Selecting investments and diversifying your portfolio complement each other or they look similar at times. You should choose investments diligently if you want to diversify your portfolio well. If you want to diversify your portfolio you should pick investments judiciously.
Warren Buffet said, "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
These famous lines of the two investment gurus aptly reflect the importance of carefully choosing your investment and its timing to gain and be safe.
Answer the following questions before you sit down to pick your investments. What is your investment horizon? What returns are you seeking to achieve? What amount of risk are you able to take? What amount of funds are available for you to invest? What are the goals of these investments? The answers will guide you toward making intelligent investment decisions.
You may start with the breakdown of your proposed investments between cash, fixed-income securities, and shares (equity). The breakdown of your asset allocation ultimately depends on your risk tolerance and expectation of the returns. A conservative investor may opt to hold 80% of his portfolio in fixed-income and 20% in equity. The reverse could be true for an aggressive investor, while a balanced investor might follow a 50-50 combination.
Let us take a look at the topic ‘how to pick your investments’ from these three angles - underlying factors, investment strategies, and crucial parameters. This piece is not just about picking shares but about picking the right instruments from debt and/or equity, that suit your risk profile and goals.
The attributes or the underlying factors of each investment vehicle need to be analyzed thoroughly as part of your investment filtering process. Some important factors that need to be considered are:
Investing your money without an investment strategy is like a sports team going into a game without a game plan. Having an investment strategy will help you discard many potential investments that may result in loss or that are not ideal for achieving your goal.
It is also important to quantitatively figure out your goal. Simply stating that you want to make money or maximize your wealth is not an investment strategy but something like having a corpus of a certain amount to retire by a certain age is a specific and quantitative investment strategy.
You must decide what type of investment you need to make to achieve your financial and life goal. Here are some of them:
The purpose of an investment portfolio is to ensure your financial stability and independence. It allows you to plan for emergencies, ensure regular income, and provide you with the financial freedom to meet your expenses. By setting aside adequate savings each month, we also gain financial discipline and the self-confidence for making judicious decisions regarding finances and future planning.
Want to stay at the top of your finances?
Join the community of 2.5 lakh+ investors and learn more about Grip Invest, the latest financial knick-knacks and shenanigans that take place in the world of investing.
Disclaimer - Investments in debt securities are subject to risks. Read all the offer-related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading. This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip Invest”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip Invest or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip Invest does not guarantee or assure any return on investments and accepts no liability for the consequences of any actions taken based on the information provided. For more details, please visit https://www.gripinvest.in/.
Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001.