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Beginner's Guide to Create an Investment Portfolio

IndianMoney.com Research Team | Posted On Monday, December 09,2019, 05:59 PM

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Beginner's Guide to Create an Investment Portfolio

 

 

A good income doesn’t always mean financial security. Financial security comes when you invest money in the right financial instruments that align with your financial goals. A right investment portfolio will ensure you attain your goals and prove beneficial in choosing the right investment option. By devoting a little time and effort you can speed up your journey and attain your financial goals faster. If you are a beginner, here a guide to creating an investment portfolio:

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See Also: A Step By Step Plan to Help You Prioritize Your Investments Needs

Beginner’s Guide to Create an Investment Portfolio

Have a Budget Plan

To make sure you save money regularly it is important to budget your income and create an investment strategy. At first track your expenses and try to get control over your expenses. Create a list of expenses and allocate budget to each of your expenses at the beginning of the month.

Also, incorporate a budget for your additional expenses and investments. This way you can divide your income and allocate money towards your investments more efficiently. You can make changes accordingly and decide whether or not to cut down on some expenses.

Savings and Investment

Almost all of us save money, but not all of us invest it. Always remember savings and investments are two separate things. Saving money means keeping the unutilized part of your income into your bank savings account while investments are savings that are put into accounts to grow through compounding and interest income.

Savings are the money kept in a bank account to be utilized in case of an emergency. But an investment allows your money to grow over time and generate income.

Investments are of two types-risk-free investments and risky investments. Generally, investments fetch returns either through interest income or by getting dividend payments through investment in equities or mutual funds.

Check Your Risk Appetite

While aiming to invest your money, evaluate the amount of risk you can afford to take. While evaluating the risk-taking ability you need to keep in mind various factors like age, income, a number of dependents, financial stability and family responsibilities, etc. Before opting for riskier investment options, keep some money in safe investment options like bank or post office fixed deposits. When you have a considerable back-up then you can proceed towards riskier investments like mutual fund or equities. Also, try to avoid riskier investments at an older age.

Know The Relation Between Risk and Return

Investors should have a clear idea about their risk-taking capabilities as their returns depend on it. Risk and returns are directly proportional to each other. Investment options like ELSS are known to generate better returns than PPF investments because of the risk factor. In simple words, the equity-linked investment option has to potential to generate more returns than debt instruments if handled with precision. However, debt instruments ensure the safety of your capital with moderate returns.

Create a Contingency Fund

Before going for any type of investment it is necessary to create a contingency fund. A lack of emergency funds may lead you to end your investment plan abruptly. An emergency fund equal to 6 months of living expenses can help you maintain your financial stability even in tough situations. it will help you meet your expenses in case of emergencies like hospitalization or loss of a job. An emergency fund helps you remain stress-free even if an emergency strikes you.

Set Financial Goals

To devise an investment strategy you need to categorize your financial goals into the short-term, medium-term and long-term goals. Thus, you can pick up the right investment option as per your financial goals. You can get a clearer perspective and remain focussed if you write down your goals.  For example, if you want to save for an international trip then writing down how much money you need or when you are about to take the trip will allow you to pick the best investment option that serves your requirement.

Diversify Your Investment

A diversified investment portfolio means you can stay afloat even when one of your investments has failed. A balanced investment portfolio means you have to allocate your resources into different asset classes in order to strike a balance between the risk and the returns. Diversification of your portfolio is important to safeguard your investment against share market fluctuations and thus reducing the risk of losing all your investments at once.

Review Your Portfolio

Last but not least, reviewing your portfolio each year is crucial in understanding what you have already achieved and which the goals you still need to achieve. This also helps you change your financial plans and explore different investment options.

See Also: How to Replace Salary with Investment?

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