Invest smart: Have a balanced portfolio
If you want to be a smart investor, you have to put the right amount of time and money into a balanced portfolio. Having a balanced portfolio is the most important part of being successful in your investment strategy.
What does it mean to have a balanced portfolio?
First of all, I need to describe to you what a portfolio is. For some it may seem obvious, but it does require some explaining. When you think of the word portfolio, you might think of an artist’s portfolio or all your previous job experience.
In general, a portfolio is this, a collection of works or references to serve a purpose. An investment portfolio is no different. According to the dictionary, an investment portfolio is the total holdings of the securities of a financial institution or private investor. Securities include stocks, bonds, etc.
When a writer has a portfolio of writing pieces that they show to agents and publishers, are they going to have only short story horror stories? Of course not. That doesn’t show their full talent and abilities. Ideally they will show short stories of different genre, essays and articles published in magazines, and maybe even some poetry.
This same principle goes for investment portfolios. You are going to want a wide array of investments including stocks, bonds, mutual funds, real estate, etc. The purpose is to reduce risk and increase performance.
Your goal is to make money through capital gains, interest, etc. the writer’s goal is to make money through a job and career.
This may sound the same as diversification and they are interrelated. Just as you need to diversify your stocks and have more than one, you need to diversify your portfolio and have more than one security.
How you diversify your portfolio will depend on several factors including age, how much money you have, whether or not you have a family, and how much you know about investing.
Someone who is in their 40s or later and is nearing retirement will have a more conservative portfolio. This means that they are buying securities that are less risky, but will probably give a smaller return. They are going to retire soon, so they need to be sure they will have the money when they need it.
Someone else who just graduated from college, landed their high-paying dream job, and is single with no family will have a more aggressive portfolio. They are going to take more risks and buy stocks and bonds that have more potential for high returns.
They have a lot of time until they retire. If they were to lose a lot of money, they would have plenty of time to gain it back. Also, they have no family to support and don’t have to worry about the security of others, only themselves.
You are still a teenager and may be very new to investing, so I wouldn’t recommend being too aggressive. Now is the time focus on learning and saving.
The most important thing to remember from this is, “Don’t put all your eggs into one basket”.
