Creating A Balanced Portfolio

By | September 4, 2013

 

 

balance scale

If you are considering creating an investment portfolio then there are a few things that you need to consider and the most important is that you create a balanced portfolio. It follows the age old rule of not putting all your eggs into one basket, this principle is the same in any investment, spread out your investment means that you will spread the risk that you are putting your capital under.

Before you start

You will need to leave any money that you invest for long term, most of the time you are able to get access to money but you might lose some of your capital. So, you are looking at a minimum of five years that you will ideally need to leave the capital alone for, this can be difficult if you need to find money for the little emergencies that tend to crop up. This is why that it is vital that when you invest money into a portfolio that you invest into an instant access account as well. This means that you will have a fund to pay for those emergencies without having to touch the capital that you use in your investment portfolio, leaving it there to work harder for you.

Risk

What you do not want to do is to put all your investment in the same area you need to spread out your investments and this reduces the risk of losing all of the capital if something does go wrong.

It is possible to work this out on your own and to spread the risk around or you can opt for a managed portfolio to do the work for you. They will work for a commission or a set fee and they will manage the risk factor of your portfolio and they will make sure that they have created the correct balance of risk built into the different products that they have selected and this will then work for you.

Why spread the risk

It is important that you spread the risk and create a balanced portfolio because this will mean that if anything happens to the stock that you hold that you are not going to lose all of the capital that you have invested. This means that you will have a set-back but you will be able to continue and to repair the damage, through your other investments.

There are four main areas that you should consider spreading the investments between and they are:

  • Cash investments
  • Fixed interest securities
  • Property
  • Equities

These areas will give you a good spread of investment, whilst at the same time safe guarding the capital in a variety of different areas.

Therefore, it is vital that if you are considering investing and making your money work harder for you. You will need to be prepared to spread the load so that you invest equally in different areas to safe guard your capital from complete loss if the worst was to happen. But you also need to ensure that you have access to an account that holds your emergency fund, you don’t want to have to remove your capital until it has worked hard for you.

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