No One Can Build Your Investment Portfolio the Way You Can

Most people understand that there is no “one-size-fits-all” investment portfolio. However, plenty of people will try to formulate the best asset allocation plan based on data points like your age, the size of your family, and your risk tolerance. 

While these can be good guides for beginning to think about your assets, the truth is that only you can truly know your financial situation and the reasons behind your investment decisions to create the perfect custom-built portfolio. But before you start to get overwhelmed by the innumerable directions your investment portfolio could go, let’s take a step back and break down the basics.

What is Your Why?

So often in life, we’re charging ahead at warp speed. Between family, work, managing your finances, and other responsibilities, it can feel like there are a million things to do in a day and only so much time to accomplish everything. The world whizzes by us and very rarely do we stop to wonder where we’re going and why, but this is a fundamental first step to building your ideal investment portfolio. 

Take a moment to slow down and visualize your future. What would you like to see? Maybe it’s having enough money to put all of your children or even your grandchildren through college so they can enter the world educated and debt-free. Maybe it’s buying the perfect vacation home on beachfront property. Maybe it’s being able to take care of your parents in their old age. 

Everyone perceives and values their wealth differently based on their previous experiences with money. A well-constructed portfolio should work to find the intersection of your wealth and your why to help you achieve financial freedom. So, where do you start? 

Investment Portfolio Basics 

“Investment portfolio” is a term that people toss around a lot when discussing deals and opportunities, but it’s rarely explained. Put simply, your portfolio is a collection of assets and it exists as more of a concept than a physical item. Your portfolio should be constructed in such a way that it’s able to meet your future capital needs while providing you financial peace of mind.

To build out this portfolio you’ll need to consider a few things:

  1. Examine your financial situation - take an honest look at your current financial standing and investments to identify patterns or trends in your wealth. 
  2. Evaluate your risk tolerance - all investments include inherent risk, so you should examine the level of risk associated with certain investments in conjunction with your time horizon to determine how much you can stand to lose (in the worst-case scenario). 
  3. Determine the objective of the portfolio - identify what you want to achieve with your investments to decide which direction you should go. 

Regardless of your reasons for investing, creating a general roadmap will help you pick the right asset categories to limit losses without sacrificing too much potential gain. 

Evaluating Your Risk Tolerance 

A huge factor to consider when building out your investment portfolio is time. You don’t want to invest too late in your younger years and end up with a nest egg that hasn’t matched the rate of inflation, nor do you want to make it into your fifth year of retirement and realize your finances won’t be able to sustain you for much longer. 

Figuring out your risk tolerance is a matter of balancing your comfort for systematic and unsystematic risk against the number of years until you expect to need the money. In fact, this number might be higher than you anticipate, since Americans are living longer than ever before

To borrow from the great James Dean, “dream as if you’ll live forever. Live as if you’ll die tomorrow.” Unlike the majority of the population that is cash-strapped and relies on active income, high net worth individuals have more passive income and can afford to have greater risk tolerance. 

The bottom line here is that your portfolio should only consist of investments that present a level of risk you’re comfortable with. 

Diversification with Alternative Investments 

Although many people believe that the only safe way to invest is through traditional means like bonds and mutual funds, the reality is that diversification is the true key to financial security. As the old adage goes, ‘don’t put all of your eggs in one basket.’ 

Diversification follows the same principle. Alternative investment opportunities, such as private equity, real estate, hedge funds, and venture capital behave differently than traditional investing avenues and react differently to the same economic event. Instead of moving in lockstep the way many traditional investments do, alternative investments offer high net worth individuals more flexibility and protection from market volatility.  

When you structure your portfolio to include a variety of asset classes, you’re able to reduce risk, offset losses, and avoid the potential for a financial crisis. 

The Importance of Investment Education 

Perhaps the best way that high net worth individuals can protect and grow their wealth is through investment education. It can be intimidating to go it alone with portfolio construction, but you also don’t want to hand off the reins to someone else who might not understand your unique needs and financial standing. Surrounding yourself with like-minded individuals in similar financial scenarios is an organic way to keep control of your wealth growth strategies. 

Your wealth should be a vehicle for achieving your dreams, not roadblock. Check out Mile Marker Club’s digital library of wealth education, register for an upcoming Industry Expert Webinar, or request an invitation to an upcoming Symposium to take control of your future and determine the direction of your wealth with an investment portfolio exclusively for you. 

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