How to build an investment portfolio

To be a successful investor, you need to determine the right asset allocation to reach your set investment goals. An investment portfolio is a mix of various financial instruments like stocks, bonds, mutual funds, and treasury bills. It is a group of assets that investors use to make a profit, diversify their risks, and grow their investments consistently.

Creating an investment portfolio could be overwhelming and time-consuming; in this article, we will discuss some essential steps to make this process easy.

Determine the right asset allocation for you

There are four factors to consider when determining your asset allocation. They include your financial goals, risk tolerance, age, and time horizon.

Before you start investing, you need to have a financial goal in mind. Your goals will define the right financial instruments you need to invest in. Also, to determine your asset allocation. you will need to define your risk tolerance. Your risk tolerance is your ability to handle losses that come with the volatility of some financial instruments. Another factor to consider is your age and how much time you have to grow your investments.

Build your portfolio

After you have determined the right asset allocation for you based on the factors mentioned above, the next step is to choose instruments that will help you achieve your goal.
The common types of investments include:

Stocks: A stock is a share of ownership in a company held by a group or individual. They are also known as equities. Stock investors earn money from capital appreciation, cash dividend, and bonus issues.

Bonds: A bond is a loan to a company or government that essentially pays investors a fixed rate of return for a certain number of years. Bonds are less risky than stocks because you know when and how much you will earn; bonds are also called fixed-income instruments.

Mutual funds: Another way to invest in Nigeria with a small amount of money is via mutual funds. A mutual fund is an investment vehicle where investors pool in funds to invest in various securities. Mutual funds help investors to diversify their investments due to the different types of instruments involved. A diversified portfolio leads to a lower risk of losing your funds.


Reassess your portfolio weightings

Now that you know the available instruments you can invest in, you’ll need to decide on how much of each asset class suits your risk tolerance and investment goal. Asset allocation is deciding how to split your portfolio between different asset classes. A balanced portfolio is the best way to obtain higher returns and low risks due to diversification.

Types of investment portfolios:

Aggressive portfolio: This is suitable for investors with high-risk appetite and a long term horizon. The portfolio has a very high risk and higher returns. It could consist of 70% stock and 30% bonds.

Moderate portfolio: This is a balanced portfolio for investors who want higher returns with low risk compared to the aggressive portfolio. It could be a mix of 60% bonds and 40% stocks. You can achieve a diversified portfolio with OVERWOOD. OVERWOOD https://overwood.ng is a safety-first investment platform that offers an interest rate of up to 15% per annum on their products.

Conservative portfolio: This is suitable for investors with low tolerance and a short time horizon. The portfolio offers low risk and low returns. It could be a combination of 80% bonds and 20% stocks.

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