Building a Balanced Portfolio
Whether building a home, car, or investment portfolio from scratch, you will always need to have some basic understandings down to get started. Building a portfolio of investments that can guide you to retirement is not such a difficult task, however, no one person can routinely predict where the market is headed. A few pointers to building a balanced portfolio can significantly increase your chances of withstanding an economic downturn and encourage profits when markets soar- that's just what you'll find below.
Diversification. Investors tend to have more faith in investments where some degree of familiarity exists when starting a portfolio; however, be sure to spread your exposure across markets. Diversification is not only investing in different companies, but investing in different markets, indices, industries, etc. Be sure to not invest in too many companies that are alike. No two companies are exactly alike. However, if, for example, Intel were to be found experiencing a shortage of raw goods such as silicon, companies directly and indirectly dealing with technology and technological parts may also experience financial difficulties.
Global Interaction. When on your quest to diversify your portfolio, remember that you're only on one side of the world. There is a whole side of the world with markets to be explored. Only a 25% of the worlds stocks are traded in the U.S.. Not many people are new to math, but a staggering 75% of the world's stocks exists outside of the U.S.. Just think about the opportunities that exist when you open your portfolio up to the rest of the world. By simply starting in the global market with a professionally managed and well diversified mutual fund, significant returns can be realized and global risks can be minimized.
Stagger Income Investments. When investors stagger investment income a more reliable income stream can be produced- staggering income investments is also another form of diversification. No one can predict, with any degree of certainty and for an extended period of time, where interest rates are and will be headed. By staggering income investment over a range of maturities, investors decrease the risk that investment money will come due when rates are low. If one did not stagger income investments and investment money came due when interest rates were low, it would be an unattractive market for reinvestment. Income investments are described in more detail in Build Your Portfolio Wisely.
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