Almost 90% of all first-time investors don't find any success in the stock market. This is because they either go in too strong or have unrealistic expectations regarding how much money they can make.
Some just don't have the know-how or tools to gain any traction. Others fail to take the time to build a proper portfolio.
How do you start an investment portfolio, though? There are many things that you have to keep in mind before you begin. If you dive in head first without a plan, you'll drown.
Check out this guide for a few essential investment tips that will help you become a success.
What Is an Investment Portfolio?
So, first things first, what is an investment portfolio? It's an extensive collection of assets such as stocks, art pieces, and real estate properties.
Despite having the word "portfolio" attached, investment portfolios are more of a concept than a tangible thing. Even though you can't physically touch most of your assets, you can still lose them if you don't take the time to practice proper management.
If you play your cards right, you'll get the chance to become an accredited investor.
Accredited investors are those who can trade unregulated securities. They have access to investments such as hedge funds and private equity deals.
1. Decide on Your Goals
The first step in building a profitable investment portfolio is coming up with a set of goals. If you go in without a plan, you won't be able to gain a real footing. Investing without a goal will also cause you to lose your motivation.
Like most people, you will have more than one investment goal. Unfortunately, tackling them all at once can be a bit overwhelming.
To prevent yourself from spreading yourself too thin, order your goals from the most important to the least. From there, take it one day at a time and build a financial strategy for each. If you need help in this endeavor, reach out to an advisor.
2. Pick an Investment Account
Now that you know your investment goals, it's time to choose an account that will help you accomplish them.
For example, IRAs are geared toward building retirement funds. Depending on what type of IRA you pay into, you'll use it for specific tax benefits.
For your nonretirement goals, you're better off choosing a brokerage account. It's used for buying and selling stocks or setting aside a downpayment for a house. As you can see, brokerage accounts are a bit more flexible than traditional IRAs.
3. Buy and Hold
The buy-and-hold strategy for building a successful investment portfolio is pretty simple and works well for beginners.
One of the biggest mistakes new investors make is tinkering too much with their portfolios. The more you try to optimize while learning how investing works, the more you'll widdle away at your assets.
Using the buy-and-hold method of investing involves buying assets and sitting on them. You'll still monitor them from time to time, but the basic idea is not to touch them and allow them to act as a source of passive income.
4. Don't Try to Time the Market
As you start investing and become more accustomed to the market, you'll be able to time it. If you can get it right, you'll be able to buy assets when prices are low and sell them when the costs shoot up. You'll enjoy some seriously high returns, but monitoring the market takes a lot of work.
Many average investors don't have the time or experience to get the timing right. If you're one of these investors, you would be better off trying a different strategy.
5. Past Performance Means Nothing
Buying a stock because it performed well in the past feels like it should be a sure thing, but it's not. Past success means nothing because of how often the market fluctuates.
Tomorrow that high-quality investment you paid for a high fee could be worthless. These things are out of your control.
Instead of focusing on past performance, invest based on fees and diversification.
6. Diversity Is Important
When investing, you should never put all your eggs in one basket. During a recession, physical money and stocks tend to plummet. To keep yourself afloat until things pick up, you must have a few backups in your portfolio.
Real estate is a safe investment in this regard. Rental properties are pretty much invulnerable to inflation.
7. Rebalance When Needed
As your stock rises and falls in value, it can throw your portfolio off-kilter. To keep things steady, you'll have to take the time to do a bit of rebalancing.
Most of the time, this involves selling a few of your assets. For example, let's say that your portfolio contains 40% of stocks.
One of them rises in value, causing your stock percentage to go up to 47%. You'll need to find a way to shave off that 7% to get things back to normal.
How to Start an Investment Portfolio for the Ultimate in Financial Security
Without a good plan, most new investors fail to gain financial traction. The best way to take care of your assets is to learn how to start an investment portfolio.
To keep your portfolio balanced, you need a diverse set of assets. When one or more of your assets rise in value, take the time to get things back to normal. If you're struggling to manage your portfolio, talk to an advisor.
For more tips to help you stay on top of your assets, visit the Investments section of our blog.