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Beginner Guide to Create an Investment Portfolio Research Team | Posted On Thursday, May 16,2019, 06:27 PM

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Beginner Guide to Create an Investment Portfolio



What is an Investment Portfolio?

An investment portfolio represents the list of various investments. The ideal investment portfolio is one where the investor invests in assets that are not related to each other (Diversification). A good investment portfolio must contain risk-free investments options like fixed deposits, recurring deposits and investments for retirement, return generating investments like equities and shares, debt investments to balance the risk factor along with investments in real estate or gold.  (Gold must be at least 10% of the portfolio).

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Beginner’s Guide to Create an Investment Portfolio:

Have a budget Plan: To ensure regular investment, firstly create a budget plan by evaluating net income. Tracking every little expense can be tricky, even if you maintain a list of expenses. To gain control over your finances, account for most of the expenses at the beginning of the month. Maintain separate columns for the necessary expenses and investments.

In this way you can calculate how much money can be allocated towards investments each month, after paying for basic necessities. Include the different sets of investments you make like LIC premium, recurring deposit, health insurance, PPF, equities and so on. The next step is to allocate funds to each of these investments, according to your budget.

SEE ALSO: Types Of Investment Plans

Savings and investment: Always keep in mind that savings and investments are not the same thing. Savings are the unutilized parts of your monthly income. Savings are the money accumulated and kept unused to be utilized in the future, in case of an emergency. Generally, people save money in savings bank accounts as an emergency fund.

Investments are the savings that are put away in fixed deposits or mutual funds to earn returns. An investment helps your money to grow over time. Generally, investments earn returns through interest income or by getting a share of company profits through investments in equities or mutual funds.

Check your risk appetite: The next step is trying to understand how much risk you can bear. It is always advisable to consider various factors like your income, family obligations, financial stability and age. Make sure you are financially secure, before investing in riskier investments like mutual funds or equities. If you are a beginner, then try investing in some of the risk-free investment options to stay financially secure. It is best to avoid risky investments when approaching retirement.

Know the relation between risk and return: Risk and return are directly related to each other. A riskier investment would fetch higher returns than a safe investment. If you have the knowledge and are willing to take risks in investment, you can generate higher returns, simply by investing in shares or mutual funds.

Create a contingency fund: Having contingency funds is one of the best ways to stay afloat when an investment fails. If you have a contingency fund, then you do not need to worry on an emergency or sudden expenditure. Contingency fund helps you maintain financial stability even in tough situations. 

Set financial goals: Instead of randomly picking various investments, try to focus on your financial goals. Create a financial portfolio by listing down your financial goals. Categorize your goals as long term, medium-term and short term goals in order to get a clear perspective. Writing down your goals will motivate you, achieve them.

SEE ALSO: Best Investment Plans for 2019

Diversify your Investment: You may have favourite investment options. However, the key to maintaining a good investment portfolio is to diversify your investments. This is important as it helps you maintain balance and reduces the risk of losing all your investments in adverse conditions.

Be disciplined: A disciplined and regular investment helps achieve your goals within a stipulated time-frame. If you have invested in recurring deposits, then you must regularly pay the monthly instalments to get the desired returns. A late instalment can affect your returns. In order to stay motivated, set reminders on your smartphone, so that you do not miss any instalments.

Review your portfolio: Reviewing your portfolio each year is crucial to understand what you have already achieved and which are the goals, you still need to achieve. This helps change your financial plans and explore different investment avenues. As most of the financial instruments are subject to changes like change in the rate of interest or fluctuations due to market changes, reviewing your portfolio can help you make timely and informed financial decisions.

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