To many investing sounds overly complicated especially if it involves
investing in more than one financial asset building a simple but effective
portfolio is a dream that every investor holds close to their hearts which is why
in this video i'm going to share with you how to build a simple but effective
investment portfolio and if you're new to the channel then hit the subscribe
button below for more life-changing content
step number one open an investing account and select a robo advisor like
they say the journey of a thousand miles begins with a single step opening an
investment account is the first and most basic step in your investment journey
and you can open an investment account with your bank or an investment firm the
choice is yours for most people the urge to open the investment account with
their bank is often too strong based on simple reasons such as bank loyalty or
rigidity to migrate to other banks or firms
whatever option you choose is fine as long as the institution will have your
investing interests at heart you can visit your bank and make inquiries if
they deal with investment portfolios and try to absorb as much knowledge as you
can about the combinations of portfolios that they offer and the terms and
conditions of operating specific investment accounts once you're
satisfied and open your investment account you can choose to link your
savings account with your investment account for an easier and more
disciplined channeling of funds into your investment account the most common
investment account is the individual retirement account ira and more
specifically a roth ira where the earnings on your investment build up
without any tax being charged on them another option would be online brokerage
firms that will help you make a dent in the stock market whichever investment
account you choose keep in mind the amount of money you want to invest and
the expenses that will stem from running that investment account
next you will need to select a robo advisor and i'm sure most of you are
scratching your heads wondering what a robo advisor is well this is simply a
software product that is customized to offer guided investment and financial
advice to investors robo advisors have gained immense popularity over the years
and we can attribute this to their automated nature with your investment
goals in mind these digitized platforms will strategically allocate your wealth
to investment assets that will see your money snowball over time a roboadvisor
saves you the bucks you would otherwise use to hire a fund manager or financial
advisor all you have to do is select a robo advisor answer a couple questions
considering your ideal investment and watch as your money grows with time
step number two set your investment target as you already know any goal
whatsoever needs to be smart in the investment world this means clearly
outlining your overall investment goals both in the short run and in the long
run doing this helps you have a focused mind towards achieving your investment
target because after all you can achieve something if you are not sure what it is
goal setting is such an inclusive activity inclusive in a way that you
have to list down what you own your earnings and also your debts you don't
have to shy away from listing your debts even if you know you will settle them
sooner or later by doing so you get a clear view of your individual financial
position and whether you know it or not it boosts up your morale to go about
your financial life in a better way develop a debt repayment plan by paying
off your debts such as credit card debts so that you can have more money left to
save consistency is key and thus your goal should be to create a plan that you
can keep up with and not one that is overly strenuous on your finances when
setting your investment target several factors come into play and in this video
we will have a look at some of the major factors the factors include the time
period of the investment your financial capability your risk tolerance levels
and your age bracket just to mention a few now let's see how they affect your
goal setting for example financial capability your savings amount depends
on your earnings and to be realistic enough you can only set a target that
you can afford getting on top of that financial ladder comes with a lot of
sacrifices discipline and determination which i know most of us can commit to
the trick is to set your priorities and targets appropriately step number three
select an index fund to invest in if you have a big appetite for risk then stock
market is a viable investment option for you and selecting an ideal index fund is
a good starting point index funds simply refer to mutual funds or exchange traded
funds that track an index market and mirrors its performance for example
let's assume that you've invested in an index fund that tracks the performance
of the s p 500 stocks the s p 500 is an index that follows the 500 top
performing companies in the stock market and at that moment it stands as the most
followed index fund in the stock market by default you will have invested in a
share of each of these 500 companies through an index fund you can buy into
diversified securities within the stock market and as a result we'll end up with
a well-rounded investment portfolio index funds are an easier and low-cost
method of including multiple stocks in your portfolio without buying each of
them individually investors love index funds because it enables them to
mitigate risks that come with a strict non-diversified portfolio but even with
all these benefits selecting an index fund that you hold on to for many years
can be a tricky endeavor typically your fund manager or robo advisor picks up an
index fund that resonates with your investment goals
the best index fund should consist of diversified investments i.e a mix of
stocks and bonds because diversity comes with a large field to spread the risks
associated with the investment fund that said there comes a need to allocate the
assets depending on a number of factors first always choose an index fund with a
low expense ratio this means that you will have to pay low costs and expenses
to the fund hence being better positioned to maximize your returns
another factor to consider is age if you are a young person between age 20 to 30
and you are saving for retirement you will most likely choose to invest more
in stocks compared to bonds and other index funds
now you're probably wondering why this is
well here's the reason stocks are higher risk investments and the higher the risk
the greater the return however this is not always the case because sometimes
investing solely in an investment portfolio with high risks can lead to
massive financial losses remember the market can be unpredictable also
whenever such unfortunate situations occur younger people have a greater
window of time to recover from the losses and rebalance their portfolios
since they are still far from retirement however with older individuals it
becomes a difficult and emotional task to recover from losses because there is
usually not enough time to start over sad right and that's why you should
consider your age before making that index fun decision before we continue on
with the video i just want to share a quick reminder that right now you can
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the link i've left down below in this video's description it's basically free
money so sign up while you can boss additionally your risk tolerance level
should be assessed before selecting an index fund if you are a risk taker you
will most likely go for the riskiest index fund as long as it promises the
highest returns to be such a risk taker you have to be
psychologically prepared that you can either lose close to everything or gain
a lot depending on the market fluctuations on the contrary there are
risk-averse people who would do anything just to avoid the risks if you were part
of the risk-averse community then it is more sensible to select a fund that
won't have your adrenaline level spiking with every market fluctuation that
occurs step number four set up regular
contributions all the other three steps were just the tip of the iceberg in this
investment journey because let's face it what uses a plan without bringing it to
reality once you set up an investment account it's now time to deposit money
into it periodically you can deposit funds into your account weekly or
monthly depending on your financial ability in every market there are
usually the boom and recession seasons so once you maintain your regular
contributions your investment fund has a higher chance of surviving chronic
market conditions compared to an investment fund with a shaky
contribution arrangement remember this is your investment and so you have
control over it also you don't have to mimic other people's savings plans or do
what everyone else seems to be doing just go at your own pace while keeping
your ultimate goals in mind because investments grow over time whatever
financial destination you have in mind you will get there an easier approach to
making your regular contributions is by linking your savings account to your
investment account such that the funds are channeled directly from your savings
account to your investment account this lifts off a lot of emotional involvement
from your plate and makes a contribution strict and timely all you have to do is
authorize the transfer and leave the rest to the fund manager or the robo
advisor treating your investment fund as a bill is another trick that will keep
you on your toes in making regular contributions be it electricity bills
water bills or car maintenance bills bills simply have a way of keeping us up
in the middle of the night wondering how we will pay them on time so automate
these contributions and reaching your financial goals will be a breeze
step number five rebalance your funds as needed with the constant changes in
market trends rebalancing your investment fund is paramount rebalancing
is normally done after a year or so let's say you had initially invested in
sixty percent stocks thirty percent bonds and ten percent in international
stocks and the market rates change in favor of the stocks you might find it
necessary to rebalance your portfolio so that a greater chunk of your investment
is in local stocks and by doing so reap more returns for example your rebounds
portfolio may look something like this 80 stocks 10 bonds and 10 international
stocks depending on the performance you might opt to sell some of your
investments like the international stocks and reinvest the money in more
promising equities however this can be costly and you really need to think
these decisions through not only does rebalancing your portfolio depend on
market trends but it also depends on factors like age as i mentioned earlier
younger people have a tendency of investing more in higher risk equities
but as you get older it goes without saying that your investment fund becomes
less volatile hence the need to rebalance and hold more of your
portfolio and bonds compared to earlier there are certain rules of thumb on how
to determine the percentage of your portfolio to be held in stocks
even though they differ the rules serve as great pointers to which investment
portfolios to choose and at what time for example there's a rule of 110 which
states that 110 minus your age is equal to the percentage of investment
in stocks you should have so for instance if you are 40 years old seventy
percent of your investment portfolio should be in stocks which is 110 minus
40 which obviously equals 70. alternatively there are other investment
funds known as target date funds as the name suggests these are funds that
adjust the portfolio over time they are set according to the time period of
investment so if you don't want to go through all the work of researching for
the most suitable investment fund this is an easier way out put your money into
a target date fund set your investment period and leave the target date fund to
balance your money into a combination of investments in short it runs your
portfolio while the deal sounds too good to be true target day funds attract
quite higher charges and leave you with no control over your investment so there
you have it those are the five critical steps that will help you build a simple
and effective portfolio hey it looks like youtube thinks this next video is
the one that will change your financial life forever give it a watch and let's
see if they're right