How to Build a Portfolio That Reflects Your Unique Goals
07/01/2024
The road ahead can feel uncertain when you’re standing at the starting line of your investment journey. You may not yet know what assets to include, which stocks to invest in, or how to know if you’re staying on the right track.
Everyone’s investment journey looks a little different because it’s meant to be based on their unique goals and circumstances. Working with a professional to develop a personalized financial plan and investment strategy can help you build a portfolio that reflects who you are today and where you see yourself in the future.
If you’re unsure where to start, try these four tips.
Your financial objectives can be broken down into short-term and long-term goals. Short-term goals have a more immediate timeline within the next five to ten years. You may want to buy a home, start a business, pay for college, etc. Long-term goals have a much longer time horizon, typically 10, 20+ years away. Long-term goals often include retirement, philanthropy work, and generational wealth building.
Assessing Your Risk Tolerance
Risk tolerance, or risk appetite as it’s sometimes referred to, is the level of risk you’re willing and able to incorporate into your portfolio. Different assets have varying risk levels—equities (stocks) are considered riskier than fixed income (bonds). Therefore, your portfolio's percentage of stocks and bonds will change alongside your risk tolerance.
The closer you get to retirement, the less risk you’ll likely want your portfolio to take on.
Aside from age, risk tolerance can also depend on other factors, such as income, job security, family status, and assets.
If you’re curious about your unique risk tolerance, several programs and platforms are available online. Most will require you to provide basic information regarding your financial standings and future goals.
Rather than invest in one particular stock or even just one asset type (stocks, bonds, cash, real estate, or other alternatives), diversification incorporates several different securities from various sectors and asset types.
Diversifying your investments mitigates risk by limiting the impact of any one particular loss. For example, if the tech sector is experiencing volatility, that accounts for only about 10% of your stocks. The other 90% of your portfolio will help cushion the blow with their potentially positive performance.
Even minor market fluctuations (including those that eventually resolve themselves) could harm your portfolio’s performance without diversification.
There is no right or wrong way to pursue values-based investing.
Aside from your life changes, market conditions can also impact your portfolio. Say bonds performed exceptionally well last quarter. Now, you’ll need to rebalance your portfolio to ensure each asset type remains within its allotted percentage (for example, 60% stocks and 40% bonds). Otherwise, your portfolio will fall out of alignment with your risk tolerance and long-term goals.
If you’re interested in creating your custom portfolio with the help of a financial professional, don’t hesitate to contact our team today.
This is provided for informational purposes. The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. All investing involves risk including possible loss of principal. Past performance is no guarantee of future results.
Everyone’s investment journey looks a little different because it’s meant to be based on their unique goals and circumstances. Working with a professional to develop a personalized financial plan and investment strategy can help you build a portfolio that reflects who you are today and where you see yourself in the future.
If you’re unsure where to start, try these four tips.
Figure Out Your Unique Goals
Before changing your investment portfolio, consider the “why” behind your investments. Determine your financial objectives, as these can help you decide what amount of risk and opportunity is appropriate for your portfolio.Your financial objectives can be broken down into short-term and long-term goals. Short-term goals have a more immediate timeline within the next five to ten years. You may want to buy a home, start a business, pay for college, etc. Long-term goals have a much longer time horizon, typically 10, 20+ years away. Long-term goals often include retirement, philanthropy work, and generational wealth building.
Assessing Your Risk Tolerance
Risk tolerance, or risk appetite as it’s sometimes referred to, is the level of risk you’re willing and able to incorporate into your portfolio. Different assets have varying risk levels—equities (stocks) are considered riskier than fixed income (bonds). Therefore, your portfolio's percentage of stocks and bonds will change alongside your risk tolerance.
The closer you get to retirement, the less risk you’ll likely want your portfolio to take on.
Aside from age, risk tolerance can also depend on other factors, such as income, job security, family status, and assets.
If you’re curious about your unique risk tolerance, several programs and platforms are available online. Most will require you to provide basic information regarding your financial standings and future goals.
Understanding Portfolio Diversification
One of the most fundamental principles of investing is portfolio diversification. The phrase, “Don’t put all your eggs in one basket,” perfectly encapsulates what diversification is.Rather than invest in one particular stock or even just one asset type (stocks, bonds, cash, real estate, or other alternatives), diversification incorporates several different securities from various sectors and asset types.
Diversifying your investments mitigates risk by limiting the impact of any one particular loss. For example, if the tech sector is experiencing volatility, that accounts for only about 10% of your stocks. The other 90% of your portfolio will help cushion the blow with their potentially positive performance.
Even minor market fluctuations (including those that eventually resolve themselves) could harm your portfolio’s performance without diversification.
Customizing Your Portfolio
The key to creating a customized, long-term focused portfolio is to align your investments with your specific financial objectives. There are several ways to go about this, but you may find it helpful to hone in on targeted investment strategies like:- Growth: Prioritizing high returns to continue growing your portfolio’s value.
- Income: Finding investment opportunities that can provide you with a steady stream of income (say from dividends or investments)
- Preservation: Protecting your portfolio from market volatility and ensuring it outlasts your lifetime.
There is no right or wrong way to pursue values-based investing.
Conduct Regular Reviews
Your portfolio should reflect who you are and what you want to achieve. That means your portfolio must be reviewed and updated accordingly as you evolve. Consider setting time aside once a quarter to check in on your investments, view your progress, and look for opportunities to fine-tune your holdings.Aside from your life changes, market conditions can also impact your portfolio. Say bonds performed exceptionally well last quarter. Now, you’ll need to rebalance your portfolio to ensure each asset type remains within its allotted percentage (for example, 60% stocks and 40% bonds). Otherwise, your portfolio will fall out of alignment with your risk tolerance and long-term goals.
Leveraging Professional Experience
Managing a customized portfolio takes more time, commitment, and financial knowledge than most people want to commit to. Instead, a financial advisor can take the time necessary to understand your goals, build a tailored portfolio, and monitor its progress on your behalf.If you’re interested in creating your custom portfolio with the help of a financial professional, don’t hesitate to contact our team today.
This is provided for informational purposes. The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. All investing involves risk including possible loss of principal. Past performance is no guarantee of future results.