Being a young and budding investor, we often hear the
term called investment portfolio but we are unsure what is in the portfolio. To
put it across in layman term, it is a mix of things you invest your money in.
Usually it’s a mix of things because you want to diversify your money to grow
your wealth, just like the saying do not put all your eggs into one basket. For
example, you have invested in a condo in Setia
Alam and you have also invested a blue chip stocks in the Malaysia stock
market. But then again, there are multiple reasons and factors that could
affect your decision in building your investment portfolio.
In the perfect world, our investment portfolio
supposedly make tonnes of money from our investments and we never lose our
money. The markets would go up and stay bullish forever and we will sell our
blue chip stocks to buy a villa by the beach. Sadly, the world doesn’t work
this way in reality. The world works in balance where it consist of winners and
losers. That’s capitalism. Do you know the way of investment also differs in
age too? Typically the young ones are more of a risk taker while investors in
their 40s are more likely to be risk averse. So, you will be questioning
yourself like how to invest? Or how do I decide if this investment is
profit-making?
You don’t just blindly throw and cast your nets into
the vast sea without setting a goal or the numbers of fish you want to catch.
Common questions to ask yourself could be like what are the goals you want to
achieve? How much you want to earn? When should you gain profit or stop loss?
There are also typical goals for young people like saving for your new nest,
future child’s education and retirement funding. Then, depending on your goals,
the way you invest will be very different too. Here are some common ways you
can design your investment portfolio.
1. Stocks-bonds
ratio
This is the classic way of designing an investment
portfolio, stocks-bonds ratio. Overall, you can decide how many percent of your
investments should be in stocks and how
many percent should your bonds be in. Here’s how you calculate the ratio.
120 – [your age] = Percentage of investments in stocks
Let’s say you’re 35 years old. 120 – 35 = 85. So
according to this calculation, you should have: 85% invested in stocks, and 15%
in bonds.
To further illustrate this:
l Age
25: Stocks 95%, Bonds 5%
l Age
35: Stocks 85%, Bonds 15%
l Age
45: Stocks 75%, Bonds 25%
l Age
55: Stocks 65%, Bonds 35%
l Age
65: Stocks 55%, Bonds 45%
Thanks to Harry Markowitz who
won the 1990 Nobel Prize in economics, it is actually an oversimplify principle
derived from Modern Portfolio Theory. However, over the recent years, more and
more people are criticizing the said theory as it is not applicable to the
modern wall anymore compared in the 1970s and 1980s.
2. Advisor
strategy
In this strategy, you will outsource your investment
decisions to personal finance advisor. When time is limited on daily basis, we
suggest for you to look for highly-paid professionals in the corporate world.
It could be pretty daunting if you will need to do research and work full time,
the best move is to hire a smart and capable person to manage your finances.
But, when budget is an issue, you can consider looking
into apps/websites that uses artificial
intelligence (AI) to help you in making investment decisions. With using
the predictive technology in the finance investment industry, the AI is
literally working for you day and night tirelessly. This is a real investment.
At the end of the day, investing is a personal thing
and no one has a perfect portfolio but it is more of a suitable method of
building portfolio. There are some days where an investor makes compulsive
decision or on some days they can be extremely reserved with their investments.
Every investor have different traits and styles in making decision, some prefer
to be detailed and some prefer to look into big picture. However, what we
advise to budding investors is that start small and be humble, a right amount
of confident will help along the journey in building your wealth. Remember,
overconfident kills. Till then, may the force be with you.
1 Comments
nice sharing
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