Investment portfolio for beginners
Investment portfolio – what is it?
The formation of an investment portfolio is an important task for every investor and a decisive condition for future success in the background market.
An investment portfolio is a set of financial instruments owned by an investor, aimed at preserving and increasing funds. Such a set may consist of stocks, bonds, mutual funds and other instruments. They differ not only in basic characteristics, but also in the level of risk and profitability. As a general rule, the higher the risk, the higher the potential return. For example, investments in shares of young companies are most at risk. Government bonds (OFZ) are considered the most low-risk.
How to form an investment portfolio?
By making transactions in the stock market, you can both earn income and incur financial losses. To minimize risks, we advise you to adhere to the following rules when compiling a portfolio:
- Compliance of assets with the purposes of investment. Before you start trading on the stock exchange, clearly formulate your financial goal. For example, if your main goal is to maintain and increase your investment with minimal risk, then a conservative strategy will suit you. It is most suitable for novice investors.
- Portfolio diversification. Your capital should be distributed among different assets. Even if one of them causes a loss, the growth of others will be able to compensate for these losses. Let’s look at an example of how diversification works. Let’s say you bought shares in Aeroflot, Sberbank, and Gazprom. All these companies belong to different sectors of the economy. At the same time, such a portfolio may not always be reliable. The fact is that these companies belong to the economy and depend on it. In the event of a crisis in our country, these papers can "sag" along with the expected income. Therefore, add securities of issuers from different countries and sectors of the economy to the portfolio, and also pay attention to the fact that companies do not depend on one indicator (in our example, this indicator is the economy).
- Instrument liquidity. Liquidity is understood as the ability to quickly and profitably sell assets on the stock market. For novice investors, we recommend buying instruments with high liquidity, for example, shares of Gazprom, Sberbank. You can always sell them on the stock exchange at the market price.
What principles to follow when choosing investment instruments?
We have already covered the key points that you should pay attention to when compiling a portfolio, but this is not enough. In order to consciously choose investment instruments and achieve the desired results, it is important to know a few more rules:
- Don’t spend all your money buying stocks. For novice investors, this approach can be very risky, since the value of shares is highly dependent on changes in the economy and can change dramatically.
- Don’t trust everything they say. Shares that are talked about everywhere and everywhere can be too overvalued, that is, they can be sold much higher than their real value. We advise you to independently study the financial performance of the company: the dynamics of revenue and net profit, the amount of funds in the company’s account, the presence of debts and growth factors.
- You shouldn’t speculate. Speculation involves generating income by changing the value of an asset in the short term. For example, you bought a stock for 10 conventional units and expect that in a couple of days its price will rise to 12 conventional units. However, in practice, the security can “sag" a lot and then you will have to close the deal with a loss or wait an indefinite amount of time until it recovers and possible growth. Speculation requires a lot of effort, time and special knowledge and is suitable for more experienced investors.
- Read analysts and trusted sources of information, follow the news. You can trust the opinion of experienced investors, find up-to-date ideas and selections of promising securities on the broker’s website. So, based on forecasts and various reviews, you can decide to invest in a particular asset. However, it is important to remember that only you are responsible for your decision and no one can guarantee you a 100% future result.
- Determine your risk profile before you start trading. This is necessary to understand which investment instruments are right for you. The risk profile can be, for example, conservative, rational or aggressive. You can go through risk profiling with a broker.
What can be placed in a portfolio?
For novice investors, we advise you to build a portfolio for passive investments, with which you will not need to make transactions on a daily basis, constantly follow the news and study the financial statements of companies for days on end. Passive investments are less subject to sudden changes in the economy and are suitable for investors who do not yet have serious experience and professional knowledge. We recommend looking at broad market indices. For example, the S&P 500 index includes more than 500 of the largest US corporations, including such giants as Apple, Microsoft, Amazon, Facebook and many others.
Part of the assets can be placed in government bonds, which give, albeit low, but stable income. You can also protect yourself from unfavorable market conditions by investing in precious metals. However, their share in the portfolio should not be too large.
Summing up, we remind you that there is no universal investment portfolio that would suit every novice investor. The set of assets depends on your goals, capabilities, interests, attitude to risk and investment period.
What needs to be remembered?
Investments are not a lottery, and the income from them is not luck, but the result of meticulous work. Novice investors should build a portfolio of stable and liquid securities from different sectors of the economy. When choosing assets, it is important to make informed decisions, because all responsibility for possible losses lies only with you. You can compile an investment portfolio yourself, relying, for example, on the opinions of analysts and information from reliable sources, or you can seek help from a professional financial adviser.