What is an investment portfolio? Think of an investment portfolio like a storeroom that holds all your assets that can generate income and grow in value with time for you. Inside this storeroom you can have unit trusts, stocks, bonds, properties etc.
When constructing our portfolio, consider these factors.
Growth
Saving and investing for retirement is a long-term project. The nucleus of your retirement planning portfolio should consist of growth instruments such as equity unit trust funds, stocks or properties. These financial instruments grow with time and are very good investments to hedge against inflation.
Portfolio Diversification
Diversification ensures our eggs are not in one basket. As we approach retirement age, our portfolio diversification can take different forms at different age.
When we are young, at 20s to 30s, we may only need to diversify among different types of equities unit trust funds or stocks such as large, mid or small caps funds/stocks. Properties may also be part of it.
At 40s to 50s, we may need to be more conservative or moderate. At this age we should move some of our investments into less risky asset class such bonds, investment that could generate stable income for us without high volatility.
Risk Tolerance
Consider what is our risk tolerance level before investing. At younger age we may opt for aggressive growth generating investment. However, at retirement age we may want to consider more stable income generating investment.
Conclusion
An ideal portfolio is a portfolio that consist of growth components when we are young. As we begin to advance in age, we need to gradually shift the portfolio from growth to stable income generating investment. As our financial goals and risk tolerance changes with time, it is important to diversify and rebalance our portfolio as we move along with time.
To learn more about constructing a portfolio for retirement planning, pm me HERE.
Source: Adapted from Investopedia.com
