Already on ArticleSlash?

Forgot your password? Sign Up

Creating and Diversifying a Portfolio


Visitors: 225

When looking at your investments, it's important not to look at all your investments individually, but rather to look at your entire portfolio of investments. It's quite common for investors to brag about one of their stocks or funds being way up, while failing to mention that everything else in their portfolio is DOWN! That's pretty silly. Having a portfolio is for the purpose of diversification-having your money spread out over different assets. If there was no need for diversification, we could all just invest in Coke or Pepsi and sit back and collect the money. But we never know how a particular security or asset class will perform, so it's important to diversify so that your entire portfolio will never be seriously damaged by a decline in one investment.

So how do we create a portfolio? Well, it partly depends on your goals and your risk tolerance. Those with a longterm timeline to invest within can usually tolerate more risk. A portfolio with a high degree of risk but high potential return in the longterm, is often referred to as an aggressive portfolio. An aggressive portfolio may contain 75% or 80% in equities (stocks) and the rest in fixed-income investments like bonds. Young people in their 20s who won't need the money for a long time are likely suitable for an aggressive portfolio.

On the other hand, some people's main concern is to maintain the wealth they already have and reduce risk. Such people are likely older and have a shorter investment time frame, and already have money. A young single man in his twenties who has little money yet is really not the best candidate for a conservative portfolio. Conservative portfolios usually consist of mostly fixed-income securities (say, 70-75% of the total assets), while equities play a relatively minor role (around 15%-20% of the total). The remainder is kept in cash or cash equivalents.

And of course there are more balanced portfolios which are somewhere in between, with perhaps 50% kept in equities, 40% in bonds (fixed income securities), and 10% in cash. This is good for the investor with average risk tolerance, who wishes to build wealth while maintaining general stability in his portfolio.

Within those broad categories of equities, fixed income securities, and cash, you diversify even further within each asset class. Having 75% of your money in equities doesn't mean that you can put that 75% all into a single stock. You might want to diversify across different sectors of the economy (technology stocks, financial stocks, etc. ), or diversify into both large and small companies, etc.

So, to determine how to create a portfolio, first you must determine your investment time frame and your risk tolerance. I, for example, am 30 years old, single, and have an investment time frame of around 25 years (I plan to retire completely at age 55). I have a high risk tolerance. I don't care if my investments fluctuate wildly in the short term because I won't need most of the money for a long time. So I can endure the chaos of the stock market and feel totally relaxed leaving my money in even when the market drops.

What's your investment time frame, and how much short-medium term instability can you endure?

Paul Jorgensen gained financial independence after years of turmoil by taking control of his finances and learning to invest strategically.

For more tips visit


Article Source:

Rate this Article: 
Portfolio Imbalance
Rated 4 / 5
based on 5 votes

Related Articles:

Creating a Career Portfolio

by: Maurisa Westbury (July 25, 2008) 
(Business/Careers Employment)

Being Smart Diversifying Your AdSense Income

by: Emilian Sokoli (June 25, 2008) 
(Internet and Businesses Online/PPC Publishing)

How to Invest $1 Million Dollars - Diversifying Secrets

by: Richard Blaine (December 05, 2008) 

Diversifying Commercial Market Ruling Pune Real Estate

by: George Gonigal (July 03, 2008) 
(Real Estate/Commercial Property)

Marketing Strategy And Product Portfolio Mix - How Do You Develop Your ..

by: Adrian Pepper (February 11, 2008) 

Natural Gas ETF - Will Diversifying With Natural Gas Help Your Investing?

by: Michael Matousek (December 07, 2007) 
(Finance/Stocks Mutual Funds)

Tips on Creating an Extraordinary Life by Creating a New You

by: Lora Davis (September 09, 2017) 

Portfolio Diversity

by: Mark Jennings-Bates (July 18, 2008) 

Stock Portfolio

by: Amit Malhotra (December 10, 2008) 

Portfolio Imbalance

by: Rotich Wilson (March 27, 2008) 
(News/Pure Opinion)