Hussam Elamin

How to build an investment portfolio for beginners

How to build an investment portfolio for beginners

Building an investment portfolio can appear complicated to a beginner. However, if you take the proper steps, investing will be a breeze. If you begin with genuine tools, proper knowledge, and, most importantly, research, your investment will be successful. It is important to note that investing involves risk; there is no guarantee that you will profit or lose money.

What is an investment portfolio?

Bonds, stocks, and exchange-traded funds are included in the collection. As compared to the actual object, it is more of a concept. Even though all investing is done online these days, it’s still a good idea to think of each of your individual investments as a component of a larger whole. When choosing how to invest your money, it’s important to take all of your investment accounts into consideration, for instance if you have a retirement savings account and a brokerage account.

How to build an investment portfolio in 4 easy steps

What images come to mind when you Build an investment portfolio?

You’re in for a pleasant surprise if your vision of investing includes spending hours choosing individual stocks, tracking their performance daily, and making frequent buys and sells. It’s much simpler for the typical investor. After initial setup, you can create long-term wealth with an investment portfolio with little effort.

For beginners, here's how to create an investment portfolio.

  1. Open an investment account
    As a new investor, the first step is to select the appropriate investment account for your needs. Most investors will do this by opening a regular, taxable brokerage account through which they can invest in stocks, bonds, mutual funds, and exchange-traded funds. You must pay tax on your investment profits and dividends with these accounts, but you can withdraw your money at any time. Any online broker can help you open an investment account.

  2. Decide on your asset allocation
    Asset allocation is simply the percentage of each asset type in your investment portfolio (we’ll discuss those in the next step). Your age and future income needs are two critical factors to consider when allocating your assets. For example, single investors in their 20s will have a very distinct investment portfolio than someone in their 40s or 50s who anticipates retiring soon and is considering funding a child’s college education with their pension plan.

    The asset allocation of your investment portfolio is also influenced by your personality. Do you find it stressful to imagine your investments experiencing a brief decline, or would you rather accept the possibility of losing money in exchange for the chance at greater returns? Your risk tolerance is what is meant by this, and only you can determine what is appropriate for you.

    One approach to allocating your assets is as follows: To calculate the percentage of your investment portfolio that should be allocated to stocks, subtract your age from 110. For instance, if you are 25 years old, you might think about investing 85% of your assets in stocks and the remaining 15% in other types of investments, such as bonds. There is no one size fits all approach to asset allocation, as there is with all aspects of investing; only you can determine what is the best strategy for you.
  1. Pick your assets
    It’s time to choose your assets and divide your investment funds among them after you’ve determined how you want to allocate your assets. Diversification is essential when creating a portfolio or making any kind of investment.

    Note: Basically, spread your money among different stocks, bonds, funds, and markets rather than investing it all in one sector. The most popular assets to include in your investment portfolio are listed below in brief:
  • Stocks – Purchasing stocks is similar to acquiring a small stake in a business. Through mutual funds, index funds, or exchange-traded funds, you can invest in specific stocks or “baskets” of stocks. The riskiest investments are typically individual stocks, but they also have the greatest potential for high returns.
  • Bonds – When you purchase a bond, you are effectively lending money to the government or a business, which they will later repay you for with interest. They are less risky than stocks, but typically offer lower returns.
  • Exchange-traded funds (ETFs) – Similar to how stocks are traded throughout the day, ETFs are. You can buy a basket of assets instead of having to buy the stocks separately, which is another fantastic way to diversify your portfolio. ETFs employ passive management.

Step 4: Rebalance your investment portfolio

ETFs are traded continuously, much like stocks are. Another great way to diversify your portfolio is to buy a basket of assets rather than having to buy the stocks individually. Using passive management, ETFs.

Your asset allocation may become out of balance over time, and you’ll need to make adjustments. Every 6 to 12 months, or if one of your asset classes (stocks, bonds, etc.) shifts by a significant percentage, it’s a good idea to review and rebalance your investment portfolio. For instance, suppose we checked in and discovered that we had increased the percentage of assets we were allocating to stocks from Step 2 to 90%.

Selling some of the stocks and reinvesting the proceeds in other assets, up until your stock allocation drops back to 85%, will help you rebalance your investment portfolio.

About the authors

Hussam Elamin is an entrepreneur and investor that invest in Real Estate, New startup Company and etc. Also, he is finance consultant in Saudi Arabia. He covers a wide variety of topics including Finance, Marketing, Brands, Accounting and investing, cryptocurrency, mutual funds and financial advice. 

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