A portfolio is a collection of securities or a collection of all your investments put together. A good investment portfolio is vital for stable and good returns. The motivating factor here is that you do not want to risk putting all your money into only one commodity. This has caused significant loses to many investors and hence the earlier you learn the following tips for putting together a good investment portfolio, the better.
To start with, you may need to identify the market or industry that meets your investment objective. There are several industries out there where you can spread your investments. Some of these markets are emerging whilst others are already matured. In the emerging industries or markets, the profits here are high with a corresponding higher risk. The opportunity here is for the first mover or those who can invest early. The mature industries however are quite stable in returns and with moderate risk.
The next step is to determine which companies in these industries to spread your investments. Several companies operating in markets such as the real estate, telecommunication, mining, education, oil and gas, could all be considered. These are the most lucrative areas of investments these days. A Portfolio of investment that consists of commodities from these sectors has been seen to do well even under difficult economic conditions.
You may also need to know which securities or commodities to invest in to reap the highest returns. Should you go for stocks, bonds, etc? This question is well answered by considering your risk profile. That is, your attitude towards risk. This is because stocks returns are highly volatile unlike bonds. Again, dividend payments may not also be consistent, since these payments are determinant on the board of a company’s directors who may decide to use the profit accrued for the year to undertake other activities which they believe will help the company in future. This notwithstanding, stocks can be very lucrative if you have significant amount of money to invest. Bonds even though stable compared to stocks also has its shortfalls. Since interest payments are mostly fixed with many bond instruments, investors stand the risk of losing when interest rate falls. This is because when interest rate rises, bond prices are expected to fall. There is also the risk of default, re-investment and inflation, all associated with holding bonds.
These suggest that good investment portfolio should consist of few stocks and medium term bonds if you consider yourself risk averse. However, for an investor with much desire for higher returns and can tolerate risk, then a portfolio consisting of more stocks and medium to long-term bonds could be appropriate. This portfolio should also include stocks and bonds from other countries. This will enable you to reduce risk that may occur in your home country. Ideally, this portfolio should also include stocks of commodities such gold, diamond, ivory and real estate to a large extent.
In this era of rapid natural disasters and sudden economic downturns, putting together a good investment portfolio will not only guarantee a good return but also provide you with a sound ground to withstand any economic and political turbulence.