How to Build Your Investment Portfolio

Whether you own a small business or you’re just developing a business idea, you will be much more successful if you develop a well-structured investment portfolio. Simply put, investment makes sure that money you’re not immediately using for your own projects can work on your behalf and grow, rather than just sitting in the bank earning a trifling rate of interest. It’s easier to set up a portfolio than you might think, as long as you follow some basic guidelines.

Where to start

When you’re first thinking about investment you need to take careful stock of your personal situation. How much money do you have available to invest, and how much money can you afford to lose? For most people, this depends a lot on the stage of life they’re at. An older person who has retired or doesn’t have many years of working life left cannot afford to take the same risks as a younger person; they also need to look at shorter term investment strategies in order to have money available when it’s needed (unless the funds are being directed into a family trust fund for use after they’re gone). A younger person might be more inclined toward impulsive choices with more risk but higher potential returns, yet actually has a lot to gain from choosing investments that will ripen over a period of decades, producing high eventual returns with fairly good security.

The importance of balance

In any properly structured investment portfolio there should be a balance between different types of asset, spreading risk between individual investments in order to maximize profits while keeping overall risk low. Spreading assets across different sectors and investing internationally both act to reduce the risk of loss caused by large-scale economic problems.

Achieving this balance depends on being able to accurately assess the potential value and risks involved in different kinds of assets. There are some basic guiding principles for this. For instance, government-backed bonds are very low risk but, accordingly, don’t offer very high rates of interest. Investing in young companies is comparatively risky but can potentially produce very good returns; picking a winner in this case requires a bit of luck but also depends heavily on your ability to understand the market and tell whether or not the company in question has a strong product or service that it can get out there effectively. Buying stock in well-established companies sits somewhere in between these two options – and, of course, there are many more.

In addition to this, a portfolio should ideally be set up so that some money is in liquid assets – i.e., it can quickly be converted into cash if the investor needs it. The proper amount to keep in this form will depend on your lifestyle and your other business interests.

Getting help

If all this sounds rather overwhelming, don’t despair. You can find helpful investing advice online at no cost, and careful research into particular assets is always worth your while. You can also find assorted software tools designed to help you by doing things such as tracking the value of your assets over time and even making recommendations as to when to buy or sell (though you should bear in mind that other people using the same tools will be getting the same recommendations). Using systems like this can make it a lot easier to maintain a portfolio once it has been set up. It takes human ingenuity, however, to spot the interesting potential investments out there, and – especially when setting up – nothing beats bringing in a professional investment advisor. This might entail some initial expenditure but in the vast majority of cases it will pay back nicely.

Investing and tax

Another reason to seek advice when setting up a portfolio is that you’ll need to keep track of your tax obligations. Most investment options are taxable but the tax rate is not always the same, and you may be able to reduce some of the tax you pay by taking advantage of things such as offshore investment and income deferral. A professional advisor will be well versed in this and able to help you keep your tax payments to a minimum, potentially saving you a great deal more than the cost of hiring them.

There is no one way to set up an investment portfolio – it really needs to be tailored to the needs of the individual – but making the effort to do it well can stand you in good stead for the future.