How To Prepare A Portfolio For A Better Investment. 99% of an investor’s success is not due to chance. Instead, the right investment strategy is key to increasing wealth. An investment strategy is a plan an investor uses to make investment decisions. It defines a specific, long-term approach to asset allocation, stock trading, ETFs (Exchange Traded Fund), bonds, options, certificates or risk management.
A correct investment strategy can change your life. However, a bad investment strategy can lead to significant losses. The facts remain that your investment strategy starts with creating a portfolio. Therefore, today we will explain how to prepare a portfolio and what to pay attention to.
A portfolio consists of many different asset classes. These asset classes are; deposits (daily and fixed-term deposits, savings book, savings plan, savings account), securities (stocks, bonds, funds, certificates), real estate (homeownership, real estate crowd investing, real estate funds), raw materials (agricultural raw materials, energy resources, precious metals such as gold), alternative investments (private equity funds, hedge funds)
Your portfolio can contain anything that you expect to increase in value in the short or long term. It is crucial, however, that you diversify. In addition to opportunities for (price) gains, every security or investment object also harbours the risk of loss. On the one hand, there are security or property-specific risks inherent in the investment itself. On the other hand, there are market risks that result from the development of the individual (securities, real estate or commodities) markets. There is also a currency risk when investing in foreign currencies. Whether the category, industry or company – as an investor, you should think through various scenarios to be prepared for breakdowns in each of the fields. Special attention is required here: there are more correlations on the stock market than you might think at first glance. For example, those who only invest in stocks are not safe from a stock crash. Therefore, investors should always diversify their portfolios across different asset classes.
Moreover, you have to decide what type of investor you are when building the portfolio. This includes which individual risk tolerance you have, which investment goals you are pursuing, which return expectations you have and which investment horizon is available to you.
Last but not least, as soon as the portfolio structure is in place, you should take care of your risk management. Many private investors consider very carefully which asset classes they want to invest money in and how they weight them, but then often ignore the risks of investing. You shouldn’t take any precautions at the time of an emergency. On the stock exchange, you should at least set stop-loss rates to protect yourself from price losses or to secure profits.