7 Steps to Starting an Investment Portfolio

So you've finally made the decision to start saving for retirement and you want to experience the extraordinary growth of the world financial markets. Great decision! You may feel anxious as well as a bit of anxiety along the way, but it's perfectly normal for beginners. Just remember, all you have to do is get it started. From there it is simply a matter of reading up on investment opportunities and depositing money into your brokerage account.

You've already decided how much you will routinely invest each month or quarter. Now you're going to create an investment shopping list of stocks, bonds, and mutual funds to buy. Before you can start buying investments, however, you need to open a brokerage account for purchasing your investments and building your portfolio.

Step 1. Make a plan
Decide how much of your portfolio should be in income and in growth. Generally, if you're younger than 40 you should consider a portfolio with a higher concentration of stocks or growth investments. Those a bit older than 45 will tend to be a bit more conservative and veer to income investments like muni-bonds as they tend to be a bit safer. Older folks are generally more conservative because it can take a while to recover from a down market, and that isn't a risk some individuals are willing to take. It is perfectly normal. Remember that you are the referee here, and you make the decisions of what level of risk you're ready to take. While deciding what your asset allocation should be, make a commitment up front to systematically investing. Investing isn't a set-it and forget-it type of task. You need to continually make investment decisions and purchases. Whether it be $100 a month or $500 a quarter, decide now how much and how often you will invest and stick with your plan.

Step 2. Pick your first investments
When you've decided what your investment approach is going to be, you're ready to begin choosing your investments. This is the step where you decide how much to invest in stocks, bonds or cash type investments like CD's or T-bills. Before you you begin opening your account, you'll want to think about the general composition of your portfolio.

Step 3. Pick a brokerage firm
You've made an asset allocation plan and picked your first investments. Now is the time to pick a brokerage firm that you have confidence in. When choosing a brokerage firm, be sure not to base your decision on any one person. Picking a brokerage firm is no different than picking a bank; you wouldn't base your banking choice on a tellers good humor. You're going to be working with this brokerage firm for a long time, so choose wisley.

First decide whether or not you need a broker or if you can make your own investment choices. After you've thought about this, you now know if you need a full service brokerage or a simple discount broker. There are services that full service brokerages offer like life insurance or annuities that discount brokerages may not offer, but these are provided by your local bank if you need them. Discount brokerages provide more economically priced services because you pay for what you need. If you're leaning towards a discount brokerage firm, I'd recommend Scottrade. Scottrade has a different set of beliefs regarding their customers, and their business decisions are not based on shareholder expectations because it is a privately held company.

Step 4. Open your account
When you've chosen the right brokerage firm that meets your needs, you'll need to set up an account. Most discount brokerage firms will have online applications, however it will take a few days to complete the process. Brokerage applications are required by the Securities and Exchange Commission and are used to inform the brokerage of their customers. Personal information such as your Social Security number are needed as well as an opening deposit in most cases. Most brokerage firms require a minimum opening amount of $500, for example. Be sure to review the full list of services provided before you open your account, this may be the deal breaker.

Step 5. Reinvest your dividends
This is very important. If you seriously want to experience the tremendous growth of the financial markets, you'll want to keep your investments and your investment income working for you at all times. The power of compounding will prove over a period of time that reinvesting dividends and investment income is the right choice. Dividends may seem like a trivial amount at the beginning, but before you use those earnings to put in a pool in the back yard, think twice about your future.

Step 6. Open a Money Market for short-term reserves
Keeping your money working for you is important. The more it is earning at all times, the better off you will be. So when you make a plan to make an investment, first deposit those investment dollars into your brokered money market account until you're ready to make your trade.

Step 7. Make your first trade
Fortunately this step is incredibly easy to do, but it also can be incredibly difficult at the same time. If you're hesitant at all about making your initial investment, take two deep breaths and tell yourself "this is for my future". You've already decided in step 2 what your initial investment will be as well as how much you'll invest in step 1, so now all you have to do is make the trade.

By now you'll have gathered that saving for retirement is not as simple as letting your employer know how much to scrape off your monthly earnings and pour into your 401k. A 401k just won't cut it alone! Social security may also be "on the outs" in the coming years as well. Prepare yourself for your retirement, and make the easy decision to start investing now.


Related Articles
What to Look for In a Mutual Fund Prospectus
Tips for choosing the winning mutual fund.
Survival of a Down Market
A life lesson about staying on course.