What is portfolio investment?

Keen to build an investment portfolio but not sure where to start? Or even if it’s the right financial move for you.

By Kelly+Partners Team  |  2 Oct 2021

Being in possession of a healthy investment portfolio sounds impressive, even if you only have the most rudimentary understanding of the world of stocks, shares and bonds. But it can also be a bit scary if you’re not sure where to begin.

Is it safe? Where’s the best place to invest your money? And what is a portfolio investment anyway?

What is a portfolio investment?

An investment portfolio is best described as an assortment of financial assets, owned by an investor and acquired with long term investing and returns in mind. These assets can be made up of stocks, bonds, exchange-traded funds, cash and currencies or other securities. The idea of an investment portfolio is that, over time, it will grow in value and earn a return on investment. 

For these reasons, it’s usually considered a passive investment. A very hands-off way to build personal wealth. That doesn’t mean you can’t stay involved. It just means your investments don’t need to be constantly managed.

Are all portfolio investments the same?

While every investment portfolio is different, they will likely fall into one of two broad categories:

Strategic – Investing with a long term approach, and will usually be based on the three key elements of risk tolerance, objective and time horizon. Over time and because of ever changing markets, this type of investment portfolio will need to be reallocated, depending on the current and future needs of the investor. 

Tactical – This is the hands-on approach. The investor, or their financial advisor, will need to stay on the ball and actively manage this investment portfolio. Investments need to be shuffled based on their performance.

Risk tolerance 

Before you begin investing, or add to an existing portfolio, you need to think about your risk tolerance. You must ask yourself, how much you’re prepared to risk. How willing are you to shoulder losses in exchange for the potential for higher investment yields? 

If your risk tolerance is high, you can invest more aggressively. The greater the risk, the greater the likely return. If you prefer playing it safe, you risk less but your returns will reflect that and be much lower than those of a riskier investment strategy.

Asset classes

With so many asset classes to choose from, it’s important you know what you’re doing or discuss your financial objectives with your personal financial advisor. Becoming familiar with the asset classes will help you to make smart, educated decisions. 

Asset allocation 

Asset allocation is how you manage your risk. After discussing your risk tolerance and investment objectives with your financial advisor, you allocate assets by splitting your portfolio into different categories. These are called asset classes and include the assets mentioned above such as stocks, bonds, exchange-traded funds, cash and currencies or other securities. 

As each asset class comes with a different level of risk and return, each will perform differently, some assets will grow and increase in value over time while others may not.

Building an investment portfolio 

What are your investment portfolio objectives? 

Decide what type of investment portfolio you want to create. Are you looking to build your personal wealth slowly and over time? Do you want big returns, fast? How much risk are you prepared to accept?

Not sure where to begin or what your core portfolio objectives are? Contact one of our experienced investment advisors to help you be better off.

Determine your risk tolerance 

Remember, you can change your mind. What you decide today doesn’t have to be your lifetime investment plan. If some investments aren’t working for you, or your circumstances change and you need to invest in less risky assets, your assets can be shuffled, bought or sold. 

Factor in costs

While it’s true you can shuffle your investment portfolio, if you’ve taken a strategic approach, regular shuffling can not only undermine your investment objectives, but it can also cost you money. Transaction costs can and will add up over time.   

Allocate assets

Now you’ve worked out your risk tolerance, it’s time to start investing. Choose investments that work for you. Stocks, shares, government bonds, ETF (Exchange Traded Fund), cash or commodities. However you decide to invest, focus on your short or long term objectives.

Diversify 

Talk to your financial advisor and stay true to your portfolio objectives. This means not putting ‘all your eggs in one basket’. No matter how tempting, especially if you’re seeing good returns from one asset.

Unless you understand exactly what you’re doing and are prepared to ride the sometimes emotional waves of the international money markets alone for years on end, it’s probably a good idea to offload some of this stress to your financial advisor. A great financial advisor will:

  • take the time to understand you and your long term financial goals
  • understand the investment markets
  • allocate assets in the way you want and need, and;
  • always have your best interests at heart.
Managing and building your personal wealth takes time and experience. Not to mention the advice of skilled financial advisors. Contact us today for a discovery call to discuss how we can help you create the investment portfolio you’ve always wanted.

 

 

This offer for Private Wealth Services is not available to clients of BMF as at 31 December 2016.


DISCLAIMER

Kelly Partners Private Wealth (Wholesale) Pty Ltd is a corporate authorised representative of Kelly Partners Private Wealth Pty ltd (AFSL: 516704, ABN 14 629 559 860). Any general advice provided has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider the appropriateness of the advice with regard to your objectives, financial situation and needs.

Kelly Partners Private Wealth Sydney Pty Ltd is a corporate authorised representative of Madison Financial Group Pty Ltd (AFSL: 246679, ABN: 36 002 459 001)

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