From the moment you start investing, you build what’s called an investment portfolio. These are the accumulation of your assets—stocks, bonds, mutual funds, and so on. The portfolio keeps all of your assets in one place, though whether you control the portfolio yourself or hand it off to a financial advisor to handle is completely up to you. These portfolios also help determine your risk tolerance; how much are you willing to risk as you continue building your portfolio?
Most importantly: how do you build an investment portfolio in the first place?
You don’t have to build your investment portfolio alone. There are different kinds of financial advisor services available that’ll let you be as hands-off as possible, from robo-advisors to traditional financial advisors. Robo-advisors will take your risk tolerance and goals to build and manage your portfolio for you, while online and traditional financial advisors will help build your portfolio and map out a financial plan for you to follow.
To get your portfolio started in the first place, you’ll need to get an investment account started up. This comes in many different forms: IRAs, for example, are retirement accounts that offer tax advantages on your investments, while regular brokerage accounts work best for non-retirement financial goals. High-yield savings accounts are perfect for when you need the money you plan to invest in the next five years. What are your goals for investment? These goals should lead you to the type of account you open up.
Types of Investments
Once you have an account set up, you need to start actually investing. This should be based on your risk tolerance, so figure out where you stand with that before doing anything. There are many types of investments, but stocks, bonds, and mutual funds are the three most common types. Stocks are for investors that believe the value of their purchase will go up over time, risking the chance that the value won’t go up at all. Bonds—loans to companies or governments that are paid back over time—are safer than stocks but have a lower return in general. Mutual funds let you diversify your portfolio by investing in stocks and bonds (or any other investment type) all at once. These are less risky than buying individual stocks.
After you figure out what you want to invest in, you need to determine how much of each asset class you need. Splitting up your portfolio among asset types is called asset allocation, and it’s very dependent on your risk tolerance.