Investing 101: Part 1 - The Basics of Building your Investment Portfolio

Investing may be quite daunting to some as there are risks involved and it can seem quite complex. While there will always be risks when it comes to investing, you can align your risk tolerance with the appropriate investment strategy and learn how to navigate volatile markets. 

With that in mind, building your investment portfolio is a great way to secure your financial future. However, it needs to be developed strategically, with the right asset classes and a universe of options to choose from.

A good investment portfolio should be diversified and tailored to suit your risk tolerance and preference, with specific goals in mind.

Here are 3 steps to consider when building your investment portfolio, whether you’re a beginner in the stock market or an avid investor:


Step 1: Understand Your Risk Tolerance

Your risk tolerance is the maximum amount of loss you’re willing to suffer from an investment, in exchange for the possibility of greater returns. 

  • High-Risk Tolerance


An individual with a high tolerance for risk is usually willing to hold a greater amount of capital in risky asset classes in order to achieve higher returns. 

  • Low-Risk Tolerance


An individual with a low tolerance for risk might be inclined to invest in safer, more conservative asset classes that offer smaller, but steady returns.

Neither is right nor wrong, your investment choices should match your personal circumstances and your comfort level with taking risks.


Step 2: Determine Your Investment Goals

Your investment goals are the end results for your investment portfolio. They could include;

  • comfortable retirement plan, 
  • a new house, 
  • starting a family


It’s important that you develop goals that align with your risk tolerance because these goals will help you allocate assets strategically within your portfolio.

Then you want to look at dividing your goals into:

  • Short-term (0 to 2 years)
  • Medium-term (3 to 7 years)
  • Long-term (7 years or more)


For example, a short term goal might be taking a $10,000 holiday in one year, while a common long-term goal is to reach $1 million in superannuation before you retire.

With the guidance of a financial adviser, your portfolio goals will help you determine the percentage allocation for different asset classes.


Step 3: Determine Your Asset Classes

The asset classes you include in your portfolio will depend on your goals and risk tolerance, but there are a few core asset classes that you can select from. The primary asset classes you may want to include in your portfolio are:

  • Shares
  • Bonds
  • Property
  • Cash


Each asset class has its own unique risk and return factors. 

You may want to consider the following questions:

  • What is your time horizon? 
  • What are your investment goals? 
  • What is your risk tolerance? 
  • What is your investment experience? 
  • How much can you afford to lose?


This will help guide you in determining the appropriate asset allocation for your portfolio. Diversification is necessary to mitigate risk. It reduces volatility and enhances returns by providing a portfolio with a higher return potential and lower volatility.


Improving Your Investment Portfolio

It’s important to remember that an individual’s investment portfolio shouldn’t be static. There are many market factors that can change in the blink of an eye. 

As your investment goals change or as your risk tolerance changes, you may need to update your portfolio and financial plans along the way too.

This is why ongoing investment advice or portfolio management could be the best investment you’ll make.


Are You Looking for an Investment and Risk Management Adviser?

Poole Advisory is a privately-owned boutique advisory firm in the Southern Highlands that strives to provide a wide range of solutions to clients with different needs—from estate planning, financial advice, life insurance to honing down the best investments for retirement. 

At Poole Advisory we take the time to understand your appetite for risk and to match you with appropriate investment opportunities and structure so that you can grow your wealth effectively. 

Make an appointment with us today and see how we can help you lead a life of financial fulfilment.


Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917

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