Building your dream portfolio? Do keep these points in mind

It is very important to take out a part of your earnings as savings so that the rest can be classified as the amount available for spending. Saving makes one financially responsible and aware of their spending needs and habits. How many times have we heard this clichéd statement? Yet, most of us fail to follow it. However, it is not too late if we start now.

What good is the money that is saved but not allowed to grow?

There are many investment avenues available for you to explore. Ranging from investing in ipos, fixed deposits, mutual funds, futures & options, to stocks, bonds, debentures, real estate, you can invest in any of these. Build a portfolio using multiple avenues, depending on how much you want to invest and the risk you are willing to take.

However, keep these factors in mind while building a portfolio:

Diversification

Investing in just one of the aforementioned avenues will not serve you well. You need to invest in multiple avenues after planning your financial needs carefully. Your investments should majorly be governed by three factors: risk, return, and liquidity. Higher the risk, greater are the returns. Liquidity means how quickly the investment can be converted into cash. More liquid the asset, the easier it will be to convert it to cash in the future.

Diversifying your portfolio essentially means minimizing the chances of taking a loss. If you invest all your money in one asset, you risk losing it all. Simply put, with diversification, the loss made through one asset can be recovered through another profit-making asset. Hence, investing in multiple avenues is very important.

Even within assets like stocks, you need to find multiple stocks belonging to different sectors. The stock market consists of many companies from various sectors. Diversify your investments by purchasing stocks in different industries. Diversification helps one to minimize the risk associated with all types of investments. The risks arising from the stock markets can also be set off by investing in debentures or bonds. Invest in as many alternatives as you can.

Timeline

Decide the duration you wish to allocate to a particular investment and give a timeline for it to mature as per your plans. Accordingly, you will look for opportunities in all investment types and select the method that suits you best. Make sure that you have invested for the long-term as well as the short-term. Investments for the long run are mostly for future income purposes (retirement), whereas in the short run, you are trying to earn some extra money. All in all, it is a win-win situation.

Keep on churning

You need to be aware of the market dynamics and be updated. A good portfolio is the one which is continuously updated to factor in prevalent conditions. Basically, churning is making new investments and squaring off old ones. Keeping track of your investments and updating them from time to time is the key towards a vast and efficient portfolio.

Make sure you are mindful of these things when you begin building your dream portfolio. Good luck!