Build Your Investment Strategy
Once you’ve determined your goal, time horizon, and Build Your Investment Strategy, it’s important to establish an asset allocation plan. This helps you decide how much of your portfolio should be invested in stocks, bonds, cash, and other investments to help achieve your financial goals while staying within your acceptable level of risk.
It’s also helpful to diversify your assets within each bucket. This reduces your overall level of risk by limiting the amount that could be lost in any one type of investment. For example, adding a small percentage of commodities or precious metals to your stock portfolio can help mitigate volatility (though there are no guarantees). Likewise, adding real estate or a stake in a new technology could provide diversification by increasing your return potential without taking on a lot more risk.
Build Your Investment Strategy for Long-Term Success
Your age, family situation and other factors may also influence how much risk you’re able to tolerate. Generally, the younger you are, the more risk you can take since you have a longer investment horizon ahead of you.
Finally, determining the exact investments to add to your portfolio requires a bit of research and expertise. A good place to start is with mutual funds and ETFs that align with your target asset allocation. For example, a target-date fund is an ideal solution for investors nearing retirement. These funds automatically adjust their asset mix to reflect the likelihood of needing your investments for income. Another simple way to diversify your investments is through dollar-cost averaging, which lowers the average purchase price and allows you to buy more shares over time, minimizing the impact of market ups and downs.