After the events of the COVID-19 that started in 2020, the markets experienced wild fluctuations and only saw an uptrend at the second half of 2021, where stocks experienced peaks never reached before, and added to the wealth of many investors. But with the scare of the new variant, the markets are experiencing a major correction, and 2022 started on a very careful note in terms of investment. However, as an investor, it is important to know how to make an investment portfolio. For beginners, having these four elements in your portfolio can help you in inadvertent situations and help you preserve your wealth and gains.
1. Asset Allocation
Asset allocation strategies have saved many individuals from a severe market downturn in March 2020, when the world began to go into lockdown due to the pandemic. It is a timeless strategy that takes into consideration the goals and risk tolerance of the investor. Even with the market trends seeing an upturn, it is best to continue on this note, as the asset allocation strategy is a prudent one that balances and protects an investor’s portfolio during fluctuating markets. Some of the key things to consider when learning how to create an investment portfolio that includes a balanced risk-return trade-off are:
Knowing your financial goals helps to determine the returns to expect from your investment portfolio over a specific period. Goals can be classified into three categories: short-term, medium-term, and long-term. Short term goals are like putting some money aside for emergencies, or a holiday, while medium-term goals may involve saving for a down payment on a house or purchasing a car. Long-term goals are those that require a significant amount of funds, such as higher education and retirement. When considering conservative vs aggressive investing to meet financial goals, short- and medium-term goals usually go for a moderate or growth portfolio, which are considered more aggressive, whereas for long-term goals, adopting a conservative portfolio would be more prudent.
Risk appetite is another crucial factor that needs to be considered for the most optimal asset allocation. Risk appetite simply means how capable an investor is to withstand risk. Those with low-risk tolerance may want to avoid high-risk investments, while those with a higher risk tolerance may be able to handle a more volatile portfolio. Financial investments need to correspond to the investor’s risk appetite.
Investment horizon simply means the amount of time an investor needs to remain invested until their investment goals have been achieved, which can be short-term (six months to a year), medium-term (up to five years), and long-term (up to 20 years or longer).
2. Balanced Funds
Portfolio weightings are an important factor when considering fluctuating market trends. An equally weighted portfolio tends to be more dynamic in terms of asset allocation across different asset classes, depending on the current market trends. Balanced funds help to increase returns during the uptrend in the market and prevent major losses during a market downturn. Equally weighted portfolios also prevent emotional investing with a more rational approach.
3. Health Insurance
It goes without saying that in the current climate, it is wise to have a health insurance plan, especially with medical inflation on the rise. It helps with unexpected expenses during emergencies and keeps your funds from running out. There are many affordable plans that offer coverage against critical illnesses and emergencies, such as SingLife’s Cash for Medical Costs and Cash for Dengue Costs (free Covid-19 cover), which has different packages suited to different needs.
4. Liquid Funds
Other than medical, other emergencies may happen at any time – natural disasters, accidents, etc. – and they can throw your financial strategy off track. Portfolio liquidity is important during these times. A liquid portfolio is one where you can easily cash out your investment in times of dire need.
Ensuring that your portfolio is optimised to return you the best and maximum amount of wealth does not have to take a huge amount of planning – a few strategic and wise choices are usually enough to ensure that your profits keep turning. With the application of the four elements discussed above, there is a better possibility to manage finances better to meet your wealth goals.