How to Create an Investment Portfolio

A high-performing portfolio is every investor's goal. First, you'll need to develop your own objectives and strategies.

Difficulty: Moderate

Instructions

Things You'll Need:

• Personal Financial Software
• Wall Street Journal
• Online Finance Index Access

1. Determine what items or events you're saving for. These can be retirement, a new home, your children's education or anything else you choose.

2. Determine when you want to retire, purchase a home or send your children to college, to help you decide what percentage return you need to earn on your initial investment.

3. Decide how much money to invest. Invest what you can comfortably afford now, keeping in mind that you can change that amount later.

4. Determine how much risk you are willing to take. Many investments generate high returns and are riskier than others.

5. Once you decide the amount you are willing to invest, the returns you want to achieve, when you need the money and how much risk you are willing to accept, put together your investment portfolio.

6. An investment counselor or stockbroker is a good source of advice. Tell these advisers your objectives and ask them to suggest how to allocate your money.

7. Reevaluate your portfolio at least annually. Analyze each investment.

Tips & Warnings

• With less than $25,000 to invest, consider mutual funds rather than individual stocks to diversify and balance risk.
• Invest as much as you can afford in your company's 401(k) plan. Your contribution is invested before your salary is taxed.
• Tax-free bond funds usually generate lower returns, but they also pose less of a risk.
• Allocate only a portion of your savings to stocks, depending on your age and tolerance for risk. Invest the balance in other instruments - CDs, bonds, money market accounts.

[paulpuckett]

on 7/1/2009 I would urge caution on investing in individual stocks for investors with just $25,000. A diversified portfolio should include large cap, mid cap, small cap, international, and emerging market stocks. To accomplish this with individual stocks would require substantially more than $25,000.

Using low costs ETF's combined with mutual funds is a safer approach for most investors.

[fallond]

on 2/18/2009 With the market meltdown, now more than ever, individuals have to take responsibility for their investment decisions. ETFs have surplanted mutual funds. While Zignals (http://www.zignals.com) is a one stop shop for creating research in stocks, ETFs, Forex and more.

on 6/11/2007 There is a wide chasm between current investment planning tools being used in the financial industry, and well-researched financial models developed by many esteemed financial academics such as Prof Campbell R. Harvey of Duke University, among others. No one seems interested in bridging the gap. I am a financial industry practitioner who is also an avid enthusiast in searching for the financial tools that have a solid theoretical basis. It has not been a futile search, the tools exist but they cost an arm and a leg - only institutions can afford them. Sad but true, at this point in time.

on 1/25/2006 With low fees an ETF is a good way to buy the leading companies in a particular industry. Rather than picking a company you think will do well, you can pick a sector and have a little money in each company in that sector. Not good for dollar cost averaging (where you invest a little each month), but good way to target sectors. I keep Index funds (usually lower fees than managed mutual funds) for the majority of my portfolio but use ETF's to trade more actively with a smaller portion of my $.

on 11/22/2005 Use a portfolio assessment tool to determine overall risk. Financial Engines has a great tool: http://instantforecast.financialengines.com.