HUNTSVILLE, Ala — An investment portfolio is a collection of assets and can include investments like stocks, bonds, mutual funds and exchange-traded funds. " Basically, look at it as if you've got a basket and you're collecting all sorts of assets," Chris Markowski, financial expert, President of Markowski Investments, and host of The Watchdog on Wallstreet Podcast shares. "Your portfolio is all of your assets in that basket. It's just basically everything that you have."
For example, if you have a 401(k), an individual retirement account and a taxable brokerage account, you should look at those accounts collectively when deciding how to invest them. " You want to own the things that you're putting in. Obviously, you're purchasing certain assets," Markowski shares. " You may own index funds, mutual funds, stocks, real estate, whatever makes up your portfolio is in there and each individual is unique and different."
Another thing to consider when creating a portfolio is your personal risk tolerance. Nerdwallet.com defines this as, "Your risk tolerance is your ability to manage losses in exchange for the possibility of earning higher investment returns. Risk tolerance is tied not only to how much time you have before your financial goal such as retirement, but also to how you mentally handle watching the market rise and fall."
" If you're going to buy stocks or certain things like that, you've got to understand you got to give yourself almost like a five-year buffer, five-year time frame where you're not going to touch any of that because guess what, you need to have access and things can happen." Markoski shares. "If I've got a client that has been saving and putting money away and investing their entire life, but they want to retire within the next couple of years and are going to need to have access to funds to pay their bills, take money out of their portfolio to live on, well, they have to have a certain portion of their portfolio, which is not taking on any risk."
How to build an investment portfolio
1. Decide how much help you want
They take your risk tolerance and overall goals into account and build and manage an investment portfolio for you. " When you're having a conversation with your financial advisor, you got to be honest with yourself and what you want to do," Markowski shares. "But you also you can't be too stuck to any sort of long-term life plans."
2. Decided on an account that works toward your goals
To build a portfolio, you’ll need an investment account.
There are many different types of investment accounts. For example, IRAs, are meant for retirement and offer tax advantages for the money you invest. Regular taxable brokerage accounts are better for nonretirement goals, like a down payment on a house. If you need money you’re planning on investing within the next five years, it may be better suited to a high-yield savings account. Consider what exactly it is you're investing for before you choose an account.
3. Understanding Risk Tolerance and Asset Allocation
The first step is to decide the level of risk you're comfortable with. Higher-risk investments can generate high rewards, but they also can result in large losses. Generally, investing in stocks produces the highest returns, while investing in bonds increases the stability of the value of your portfolio.
Once your investment portfolio is set in place, keep an eye on it. Be consistent about monitoring your accounts and rebalancing your investments back to your strategic asset allocation, usually on a semiannual or annual basis.