Investing is the way to financial freedom, but without a competent approach, it can be risky. The key to success is diversification. This video will tell you about the basic principles of building a diversified investment portfolio.
Defining goals and risk level
Before you start investing, define your financial goals. Do you want to provide for your pension, buy real estate or just save up for vacation? Your investment horizon (investment period) and acceptable risk level depend on this. The longer the horizon, the more you can afford to risk by investing in more profitable, but also more volatile assets. Determine your risk profile: conservative, moderate or aggressive. This will help you choose the right tools.
Classification of assets
Stocks, bonds and others: Diversification involves the distribution of investments between different asset classes. The main ones are: stocks (high growth potential, but also high risk), bonds (more stable income, lower risk), real estate (long-term investment, potentially high profitability), precious metals (inflation protection) and others. Don’t put all your eggs in one basket! Consider investing in different asset classes to reduce the overall risk.
Geographical diversification
Do not limit yourself to investing only in your country. Geographical diversification reduces the risks associated with the economic situation in a particular region. Invest in companies and assets from different countries to reduce the impact of local crises.
Portfolio rebalancing
The market is constantly changing, and the ratio of your assets may deviate from the original plan. Regularly (for example, once a year) check your portfolio and adjust it, returning to the planned distribution. This will help you maintain an optimal level of risk and profitability. Creating a diversified investment portfolio is not a complex science, but requires a conscious approach and planning. Remember that consulting with a financial advisor can be very useful, especially for beginners. Have a successful investment!