Portfolio Reviews

How to Start an Investment Portfolio

Investments can play an important role in helping you achieve your financial goals. Building an investment portfolio, though, can feel overwhelming. There are so many different ways to invest and save for your future. Working with someone you trust and focusing on a defined set of steps, centered around what you’re trying to achieve, can make the process much easier and personalized to you.

Therefore, we recommend working with your financial advisor on these steps to building a portfolio:

• Identify your goals
• Weigh your comfort with risk
• Understand your time horizon
• Agree on an optimal portfolio mix
• Ensure proper diversification

1. Identify your goals

When it comes to creating an investment portfolio, it all starts with you and your aspirations. Therefore, before you begin choosing how to invest, we want you to think about why you’re investing, as well as your motivations and the values driving them. What matters most to you? It’s important that your investment portfolio is based on an objective that helps you achieve your unique financial goals. After all, the biggest risk you face is not in the stock market – it’s not reaching your long-term goals.

Additionally, you likely have multiple goals, each with a distinct purpose and time horizon. Your financial advisor can help you balance and prioritize all you're working to achieve. Together, you can develop a financial strategy that incorporates your investment objectives by considering topics such as:

• What you would like retirement to look like
• If you’d like to contribute to a child’s or grandchild’s education
• If you plan to make a large purchase, such as a home or a car
• If you want to start a business
• If you want to leave a financial legacy to your children or heirs

2. Weigh your comfort with risk

Assessing your comfort with risk is important because it’s unlikely you’ll reach your long-term goals if you abandon your strategy during the inevitable short-term market decline. Determining and periodically revisiting your comfort level with risk can help you avoid some emotional investing mistakes, such as chasing performance.

Growth investments, such as stocks or stock mutual funds, may experience more market volatility than more income-oriented investments, such as bonds or bond mutual funds, but can provide opportunities for higher returns. Appropriate diversification across quality, long-term investments can help align the risk of your portfolio with your comfort level. Finding that right balance can help you stay on the path toward your investment strategy. Typically, your financial advisor will ask you to complete a questionnaire that can gauge how you might react to risk in different situations. If you’re building an investment portfolio with your partner or spouse, this is an important topic to discuss with each other.

3. Understand your time horizon

You need to determine when you’ll need your money, which is directly related to your financial goals. Each financial goal will probably have a different time horizon. For example, if you’re saving for retirement, think about when you want to retire. If another goal is paying for college, your time horizon will be based on when your children will reach college age and how many years of school you plan to pay for.

Typically, the longer you have to invest, the greater your ability to make up for potential market declines, possibly allowing you to consider investments with greater return potential. As your time horizon shortens, we recommend shifting to more conservative investments that typically have smaller price fluctuations.

4. Agree on the optimal portfolio mix

There are risk and return expectations associated with each investment you choose. If an investment portfolio is made up primarily of fixed-income investments, it will likely have lower risk and lower return expectations. If an investment portfolio is more focused on equities, it will likely have higher risk and higher return expectations.

Investing is all about balance. For your portfolio, we recommend choosing an appropriate mix between equity and fixed-income investments based on your unique situation, starting with your comfort with risk, time horizon, and financial goal(s). Considering additional factors such as your retirement income needs, existing savings, and whether you want to leave a legacy can also help you decide the most appropriate allocation to stocks and bonds.

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