Financial portfolios serve as strategic guides to achieving financial goals and minimizing financial risk. At their core, a financial portfolio is a collection of various assets held by an individual or company, including stocks, bonds, cash, investments—you name it. But what should a balanced portfolio look like?
Factors to Consider When Building a Portfolio
Before you begin constructing your financial portfolio, carefully consider your current financial situation, including income, expenses, and debts, as well as your specific goals to ensure they align with your long-term objectives. Each person’s objectives may differ based on what stage of life they’re at.
Financial Goals
Clearly define your investment goals. How do you want your financial portfolio to affect your investments? Assess what you are working towards with long-term and short-term goals. Your objectives will determine your investment strategy.
Timeline
Your financial timeline is the period over which you invest in your portfolio. Just like your investment strategy, your objectives will also influence your timeline. Some goals may require more time than others.
Risk Tolerance
Your risk tolerance reflects how much potential loss you can handle in your investments. Your age, financial situation, financial experience, and market conditions will help determine your level of risk.
Asset Distribution
Ask yourself how you want to distribute your investments across your portfolio and determine the percentage of each asset. Consider all of the factors listed above to help you reach a conclusion.
Critical Components of a Balanced Portfolio
Most financial portfolios all share these common assets. Determining how to distribute your assets is significant in building your financial portfolio. Still, it is up to you to decide which type of assets are best for your financial goals.
Stocks
Significant long-term growth can occur with stocks. Your financial portfolio allows you to include multiple types of stocks.
Bonds
Bonds provide regular interest payments, helping stabilize your portfolio. Some common types of bonds in financial portfolios include government, corporate, and municipal bonds.
Cash
Liquid assets like cash ensure immediate access to funds if necessary. People usually withdraw cash from their financial portfolios for short-term uses or emergencies.
Alternatives
Some alternative investments could be real estate, cryptocurrency, hedge funds, etc. These add to the diversification of your portfolio—which is a good thing! With a more diverse and spread-out portfolio, you do not risk a large, single investment performing poorly.
Monitoring Your Portfolio
Taking the time to regularly check your financial portfolio’s performance is key to ensuring you’re on track with your financial goals. Review your returns and tweak asset percentages if necessary. Market conditions are always subject to change and fluctuations, and keeping your money protected is of the utmost importance.
Take the Next Step
Building a financial portfolio that meets your individual and economic aspirations is a considerable step in your financial journey. If you want to build a balanced financial portfolio, Royal Oak is here to assist! With our expert team of advisors, we’ll help you reach your financial goals. Contact us today to get started!
