Inflation has become a global problem recently. Investment is one of the best ways to protect the purchasing power of our savings. Investment is a process of holding a portfolio with a mix of investment products to maximize returns and diversify investment needs. Therefore, investors should clearly understand their personal goals before investing. Here are 5 steps to developing investment portfolios:
1. Know your needs
Risk and returns go hand in hand, greater returns mean higher risk. Before investing in any investment products, we should clearly understand our needs and risk-tolerate level. Investment time horizon, liquidity needs, and financial resources are the 3 major factors that should be considered. If an investor is longing for a long-term gain, he usually has a longer investment horizon to weather market volatility and higher risk tolerance. In contrast, capital protection might be a priority for an older investor.
2. Understand investment products
There are lots of investment products in the market, and each of them might have a different property from the others. Investors are suggested to read the offering documents when investing to better understand the nature and risk of investment products. Besides, some investment products and platforms require additional charges, we should have a complete picture of the amount and payment methods.
3. Diversify investment risk
Risk cannot be avoided when investing. Markets may not move in tandem, and different types of financial assets may have different performances. Investors are suggested to manage the risk by diversifying their investments. They can decide the amount invested in each asset class according to their risk tolerance level. A diversified portfolio tends to be less volatile than heavily invested in one investment or market.
4. Review strategies regularly
Investment time horizons change vary according to the investment goals, short or long. When there is a significant change to your life stage or market, the investment portfolio might no longer suit you. Whether entrusting your investment directly or with the help of fund managers, you should review the performance of the investment portfolios from time to time.
5. Rebalance portfolio accordingly
Investors should adjust their portfolios accordingly to ensure they suit their objectives and limit the risk to an acceptable level.
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