It's a beautiful day – perfect for a hike!
Before you head out, you grab your trusty
backpack and start filling it with the essentials.
I know, I know, you came here to learn
about starting a portfolio.
But follow me for a minute…
An investment portfolio is sort of like that
backpack… but instead of holding your hiking
supplies, your portfolio holds everything
to do with your investments…
Starting with your approach… the "map,"
if you will, or plan you're going to use to
guide your investing decisions.
You probably have various supplies and food
in your backpack to help keep you safe and
comfortable on your hike…
Much like the diversified assets you'll decide
to buy.
What goes in your backpack can be taken out
at any time…
Like cash in your portfolio, or investments
that you can sell quickly if you need some
fast money.
You can also choose to fill your backpack
with extra supplies…
Just like lump sum deposits that can help
your portfolio grow.
And your backpack might have different pockets
and compartments for different needs…
Much like the different investment accounts
you might open.
And you wondered where I was going with this!
Now, I think you'd agree that building a portfolio
is a little more complicated than filling
a backpack!
But have no fear!
I have four questions you can ask yourself
to chart a course.
First, what is your investing goal?
One of the most common reasons people start
investing is to save for retirement.
This is a great goal to have, and the earlier
you start working towards it, the better.
But there are so many other goals you can
have too…
Like buying a new car or a home,
or maybe travelling.
Your investing goal can be
anything you want it to be.
And deciding on one…or two… or three…
is the first step towards defining your investing plan.
This plan is what allows you to focus on the
bigger picture over time… meaning you're
less likely to make snap decisions that could
move you away from your goal.
Now, it's best to be specific when plotting
out your goals.
Identify what you want – and when you want
it.
This can help you determine which investing
accounts you'll use and how long you'll be investing.
Next, how much risk are you comfortable taking
on?
Start by asking yourself, "How would I feel
if I lost half the money I invested overnight?"
From there, you could start to identify what's
called your "risk profile."
Everyone has one, and it plays a big role in helping
you figure out what goes into your portfolio…
And I don't just mean products.
Think bigger!
Which industries will you invest in?
Which parts of the world?
But before you get to this point, risk is
the name of the game.
So check out our video, "What type of investor
are you?" to learn how to figure out the right
amount of risk that's right for you.
Moving on…
How involved do you want to be with your investments?
There are two aspects I want you to consider
here:
How much time do you want to spend deciding
what to buy?
And, how often do you want to keep tabs on
your investments?
Let's start with that first one…
Say you're keen on adding individual stocks
to your portfolio.
Ideally, you'd spend some time researching
companies that interest you.
You could start by reviewing each company's
reports and financials, and larger industry trends…
You could even go so far as to compare how
each company's values align with yours.
Needless to say, there can be a lot to consider
when buying individual stocks.
If you don't want to be so involved, you can
choose larger, broader investment funds that
can be made up of – literally – hundreds
of stocks, and other products as well.
Of course, you'll still want to spend some
time on research – but it'll be far less
than if you were buying individual stocks.
Onto the next consideration: tracking performance.
Periodic pulse checks are great
for a few reasons…
They let you see if you're
on track to meet your goals…
They help you determine whether
your goal is realistic.
For example, maybe you need
to extend your investing timeframe…
They also give you an opportunity to adjust
if something changes in your life.
Like, maybe you've had
a bump in income
or maybe you're expecting
a new addition to the family.
Whatever the reason, keeping track of your
progress can help you decide whether you need
to adjust anything.
How often you do this is up to you, but many
investors check at least once per quarter.
Whatever you decide,
use a calendar to create reminders.
Lastly, how much will you invest
and how often?
It's not just the value of your investments
that help your portfolio grow over time…
other factors can affect this too…
Like the deposits you make.
Regular funding can help you reach your goal…
and it can help get you there faster.
That's the beauty of compound interest, which
is the interest you earn on both the money
you're contributing and the interest you're
already earning on it.
If you're comfortable contributing often –
say, monthly or even bi-weekly
you can set up automatic deposits.
This can be done using
a Monthly Contribution Plan
or a Systematic Investment Plan
if you're contributing into a mutual fund.
This will allow a fixed dollar amount to be
transferred into your investing account
on a regular basis.
The exact amount and frequency are up to you.
Answering these four questions is a great
way to start building your portfolio.
And just like packing a backpack, a little
preparation can go a long way to helping you
feel safe and comfortable later.
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