Many people approach investing in a casual or aimless manner, purchasing individual stocks and bonds, but never really deciding on how to structure their overall investment portfolio. With no strategy to guide their purchases, these portfolios can contain investments that are not appropriate for the individuals’ circumstances. Here are some guidelines to consider when building your investment portfolio.
Often, the most difficult part of building an investment strategy is getting started. The tools in this section can help you understand the investment process and get you moving in the right direction toward building an investment strategy.
Asset allocation is the cornerstone of an effective investment strategy. By allocating your investments with proper diversification you may be able to both reduce risk and improve your investment returns at the same time.
Financial professionals measure risk in term of volatility. Volatility is determined by how much a stock price changes. A statistical method called standard deviation is generally used to measure volatility.
Avoiding risk is difficult no matter how you choose to invest. Diversification can help you reduce risk.
Inflation, the rise in the price of goods and services, is a force to be reckoned with because it can steadily erode the purchasing power of you portfolio.
Rather than thinking about whether you have a high risk tolerance, think about why you are investing and when you will need the money.