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New~ How to Create an Investment Portfolio

2017-06-07 05:27 [INVESTING] Source:Netword
Guide:Picking Stocks may be more fun than divining asset allocation, the percentage of Stocks, bonds and other types of investments that you own, but studies show that a balanced portfolio can have a bigger impact on long-term performance than

Picking Stocks may be more fun than divining "asset allocation," the percentage of Stocks, bonds and other types of investments that you own, but studies show that a balanced portfolio can have a bigger impact on long-term performance than individual stock picking.

The good news: if you follow a few basic rules, asset allocation can be smoother and less time consuming than scouring for the next Apple or Google.

Consider your goals. Knowing when you will need the money – how much and how soon – should help you get started.

Be honest about your risk tolerance.

Go beyond Stocks and bonds.

Invest in more asset types. One way to reduce the volatility of a portfolio is to add some alternative assets like commodities or real estate, which don't generally track the markets for Stocks and bonds. Commodities can also counteract inflation, because their prices typically rise when inflation picks up. If you're risk averse then consider putting a small portion of your portfolio in a market-neutral fund, which aims to make a profit in both bull and bear markets.

Know what you own. Just because their values aren't updated quarterly in your brokerage statement doesn't mean that collectibles, houses, art and other valuables aren't actually part of your investment portfolio. While such items aren't often quickly sold, they do have value and risk to consider before you expand your holdings in other directions.

What not to do when putting together an investment portfolio. Many investors make one or more of these common asset allocation mistakes:

Don't follow fads. Focusing on fads can get you in trouble. Chances are an investment fad has already produced high returns before you heard about.

Don't be satisfied. Taking the "set-it-and-forget-it" mentality too far can be costly. If you don't review your portfolio regularly (annually, quarterly or monthly, just decide) then you could wind up with an asset allocation that is vastly different from what you set out with.

Don't lose money. It can take years to make up for a huge setback in your portfolio, so don't ignore assets that hold up in all markets—such as dividend-paying Stocks, short-term bonds or cash.

For more reading: The Securities and Exchange Commission has an in-depth guide to asset allocation for folks who are just getting started. SmartMoney's Perfect Portfolios give you a running start on determining the right asset allocation for your age. Our asset allocation tools for workers and retirees can also serve as a starting point.

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