What Is a Portfolio?
A portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange traded funds (ETFs). Stocks and bonds are generally considered a portfolio's core building blocks, though you may grow a portfolio with many different types of assets—including real estate, gold, paintings, and other art collectibles. Diversification is a key concept in portfolio management.
Understanding Portfolios
One of the key concepts in portfolio management is the wisdom of diversification—which simply means not to put all your eggs in one basket. Diversification tries to reduce risk by allocating investments among various financial instruments, industries, and other categories. It aims to maximize returns by investing in different areas that would each react differently to the same event.
Multiple Streams of Income
Have you ever heard of having multiple streams of income? Some misconstrued this as starting multiple businesses or having multiple jobs, but that's worker harder not smarter. Having multiple streams of income comes from and is influenced by having a diversified portfolio.
There can be as many different types of portfolios and portfolio strategies as there are investors and money managers. You also may choose to have multiple portfolios, whose contents could reflect a different strategy or investment scenario, structured for a different need.
How Do I start Building My Portfolio?
When starting your planning, make a list of everything you own. Include assets such as cars, stocks, bonds, mutual funds, cash and bank accounts.
Next, list everything you owe, such as your student loan or credit card debts. Don't keep any debts off the list. The key here is to determine exactly where you stand financially. This creates what is known as a "balance sheet." It lets you see everything about your finances.
Because of convenience and technology, our culture has become an "Instant Gratification Culture." People expect riches or results right away or they will dismiss the logic and the science of "The Process." Please note and permanently stamp in your thought process that riches and financial security DOES NOT HAPPEN OVER NIGHT! Especially when you are starting from the bottom and have deprogram, learning how to be financially literate, and getting rid of bad habits.
Once you know what you have and owe, you can set realistic goals for balancing them out and getting ahead.
Now you can start building your portfolio:
Make a plan to get out of bad debts
Contribute to your 401k ($19,500 under age 50. Up to $26.000 to catch up age 50+) and Traditional IRA ($6000/year under 50. Up to $7,000 age 50+) Not only is this good for retirement, but tax credits as well.
Have an Emergency Fund savings for at least 6 months of NECESSITIES (rent, utilities, mortgage, car payments, groceries etc.). Cable, wigs, manicures, designer brand shopping, or eating out are not necessities.
Build your TEAM: Asset protection/Estate planning Lawyer, Financial Plan
INVEST IN YOURSELF: If you’re thinking about starting a business, improving your professional skills, or understanding investments vehicles, consider investing in yourself by taking courses (not just Youtube videos).
Colleges offer certificate programs in in finance, entrepreneurship, management, technology, and other areas that are relatively inexpensive to learn foundational information as opposed to getting a college degree in those areas. They will help you increase your earning potential, accelerate your financial plan, and help you to reduce investment loss because you will have a better understand of what you are doing.
Comments