Investment portfolios don't have to be complicated. Here a read to make it simpler for you.
Like any industry, investing has its own language. And one term people often use is "investment portfolio," which refers to all of your invested assets.
Building an investment portfolio might seem intimidating, but there are steps you can take to make the process painless. No matter how engaged you want to be with your investment portfolio, there’s an option for you.
An investment portfolio is a collection of assets and can include investments like stocks, bonds, mutual funds and exchange-traded funds. An investment portfolio is more of a concept than a physical space, especially in the age of digital investing, but it can be helpful to think of all your assets under one metaphorical roof.
For example, if you have a 401(k), an individual retirement account and a taxable brokerage account, you should look at those accounts collectively when deciding how to invest them.
One of the most important things to consider when creating a portfolio is your personal risk tolerance. Your risk tolerance is your ability to accept investment losses in exchange for the possibility of earning higher investment returns.
Your risk tolerance is tied not only to how much time you have before your financial goal such as retirement, but also to how you mentally handle watching the market rise and fall. If your goal is many years away, you have more time to ride out those highs and lows, which will let you take advantage of the market’s general upward progression. Use our calculator below to help determine your risk tolerance before you start building your investment portfolio.
If building an investment portfolio from scratch sounds like a chore, you can still invest and manage your money without taking the DIY route. Robo-advisors are an inexpensive alternative. They take your risk tolerance and overall goals into account and build and manage an investment portfolio for you.
To build an investment portfolio, you’ll need an investment account.
There are several different types of investment accounts. Some, like IRAs, are meant for retirement and offer tax advantages for the money you invest. Regular taxable brokerage accounts are better for nonretirement goals, like a down payment on a house. If you need money you’re planning on investing within the next five years, it may be better suited to a high-yield savings account. Consider what exactly it is you're investing for before you choose an account. You can open an IRA or brokerage account at an online broker — you can see some of our top picks for IRAs.
After opening an investment account, you’ll need to fill your portfolio with the actual assets you want to invest in.
So you know you want to invest in mostly funds, some bonds and a few individual stocks, but how do you decide exactly how much of each asset class you need? The way you split up your portfolio among different types of assets is called your asset allocation, and it’s highly dependent on your risk tolerance.