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How to Build Your First Financial Portfolio
The construction and development of your first financial portfolio can be a tricky, intimidating process. However, it’s not as complicated as you may think. A well-diversified portfolio can provide you with long-term profit and increase the growth of your investment.
Types of Investments
A financial advisor can help you understand the different kinds of investments for your financial portfolio and help you decide which is best for your situation. There are several different types of investments first-timers may want to take advantage of and that includes the following:
- 401K retirement accounts
- Real estate property
- Stocks and stock funds
- Bonds and bond funds
- Real estate trusts
- Mutual funds
After reviewing the list above, you will notice that if you own a home, that’s considered an asset and investment, so therefore it is part of your financial portfolio.
Decide Your Account Type
The first step is deciding if you want to invest in an individual retirement account (IRA) or a typical, taxable account. Either option has its pros and cons. For example, an IRA has limits on how much money can be moved and how many times it can be moved in a given year.
IRAs are a good way to start off and provide tax incentives to help you save for retirement. With a regular taxable brokerage account, you could move money as you like but you will be paying taxes on capital gains.
Decide Your Risk & Maintain the Portfolio
The next step is to decide what kind of investor you want to be, conservative or aggressive. As they say, “the higher the risk, the higher the return.” Are you willing to take on a substantial amount of risk in order to reap big rewards, or if you would rather play it safe? Talk to your financial advisor to help you make a decision based on your personal situation.
Portfolios need to be well-maintained in order to get the most from them. You will need to periodically analyze and rebalance your portfolio in order to keep up with the change in different markets. Your financial situation or needs may change, causing you to update your portfolio to better match those needs.
Keep the Portfolio Diverse
Diversification is the single most important characteristic of a successful financial portfolio. A prosperous portfolio should be a collection of different types of investments. Having a diversified portfolio protects you from losing all of your investment at once if the market you are invested in turns downward.