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After seeing the assets that fit your investment goals, what next? Portfolio construction is a vital step in investments that you simply cannot ignore. Portfolio construction means giving the different assets in your portfolio the right wealth allocation that fits your investment goals.
How do you construct your portfolio optimally?
Read this article.
5 Portfolio Construction Tips
1. Set Your Clear Investment Goals
You first need to set your goals. Some things to consider are:
- Required or expected return: How much would you like to get in return for your investment? Take this as a rate (i.e., percentage). How much percent return would you want in a year or so? Only go for assets that exceed this rate.
- Maximum risk exposure: How much in percentage would trouble you so much if you lose it? That is your maximum risk exposure. Only go for assets with risk exposure below your set risk.
- Dividends, coupons, or regular payouts: Would you love to be paid regularly? Some stocks pay dividends while most bonds pay coupons. If you prefer these regular payouts, go for assets that give them.
Ensure that assets in your portfolio match
your goals.
2. Diversify Your Portfolios
How many assets are in your portfolio? How
many of them are related to others in the portfolio? The best portfolio is one
with assets that are not related at all.
Look at this: If you have the stock of two
different banks, it means that your portfolio will always head towards a
direction, as the same forces can affect both banks equally. However, if you
have the stock of a bank and the stock of a company in the medical field, you’d
have a diverse portfolio.
With a diverse portfolio, when the market
is heading in the wrong direction, you can be sure that so many assets in your
portfolio will still be heading in the right direction.
3. Always Think Long-Term
When constructing your portfolio, always
think long-term. This is a journey in which money is involved. Therefore, there
is no room for chances. You must ensure that the assets to add to your portfolio
match your goals today and will continue matching your goals for a long time.
4. Always Monitor Your Portfolio
Some questions you should ask yourself
regularly are:
- What is the total return of the portfolio?
- How much have you been paid in dividends?
- What are the not-so-performing assets in the portfolio?
- What does the future hold for the assets in your portfolio?
Asking these questions regularly can help prevent
mistakes in your investment journey. It will also help ensure that assets in your
portfolio continue to match your goals.
5. Periodically Rebalance Your Portfolio
Portfolio rebalancing has to do with realigning
your portfolio to match your initial goals. Recall that you are not the one who
controls the market. This means that the assets in your portfolio may grow
faster or slower than what you projected. Also, some may not give as many
returns as you need.
After a while (let’s say a year or six
months), you have to monitor your portfolio and ensure that it is still in line
with your goals. If it is not, you have to rebalance the portfolio by reallocating
your wealth across the assets in your portfolio.
Thankfully, you can see the assets in your
portfolio that are no longer suitable for you using the Assessworth platform. You
can also reconstruct your portfolio with ease.
Bonus: Use the Assessworth Portfolio Constructor
In the Assessworth platform, you can go to
the “Portfolio
Recommendation” page to get a portfolio recommendation. The recommendation
will help minimize your risk and maximize your returns across the different assets
that you choose for your portfolio.
Conclusion
As you can see, we are always here for you
to ensure that you have a smooth investment journey. Part of your investment journey
is the construction of your portfolio. Thankfully, you can now easily construct
your portfolio using the tips given in this article. Awesome right?
