For those looking to supplement their incomes or build a healthy nest egg, investing can be an ideal solution thanks to the incredibly varied nature of investment instruments. Covering everything from shares to bonds, commodities, and even currencies, the range of assets that you can choose to invest in is extensive.
The beauty of this is that there is an investment strategy for everyone. Irrespective of your financial aims, your personality, or your budget, you can build a portfolio to suit your needs. First, however, you must understand how to successfully manage risk; here is a brief guide to help you do so…
Tips for Building a Low Risk Portfolio
Those who are either unwilling or unable to risk the funds that they invest should consider themselves a low-risk trader, but this doesn’t mean that they can’t achieve financial market success. The trick is to find the ideal assets.
If we were to give you a rough guide, we would suggest splitting your monetary allocation thus: 50 per cent in fixed interest instruments, 35 per cent in equities, and the remaining 15 per cent invested in property.
A good starting point will therefore be equity income funds, and the professional management that will come along with these should help you to obtain a healthy degree of diversification. Likewise, fixed interest funds can also be a positive addition to your portfolio, as can traditional ‘safe haven’ assets such as gold.
Tips for Building a Medium Risk Portfolio
The more you can afford to risk, the greater the potential returns, so if you’re willing to gamble slightly more, a medium risk portfolio may be more profitable. Although this will mean that you experience a greater degree of volatility, savers who are playing the long game will have plenty of time for their money to recover.
The ideal way to build such a portfolio is by combining both lower and higher risk assets, as this diversification will help to engender a sense of balance. Getting the blend right is therefore key.
Thus, experts recommend a division of funds thus: around 50 per cent in equities, 35 per cent in fixed interest assets, and the remaining 15 per cent allocated as you wish.
Tips for Building a High Risk Portfolio
High risk portfolios pose a greater chance of losses than their counterparts, yet they also offer the tantalizing possibility of phenomenal profits, and it is this that attracts many of the investors who choose to trade thus.
Although it is still important to balance your portfolio, you will want to look at putting around 70 per cent of your capital into stocks and shares should you adopt such a strategy. Emerging markets, in particular, will offer risky propositions, but can be incredibly profitable if your trades are successful.
Meanwhile, fixed interest and property holdings should account for much less than previously advised; around 15 per cent of your portfolio total. These will help to balance your risk, without overly limiting your profitability.
The remaining 15 per cent can be spread across assets of your choice, with high risk markets like currency trading offering an ideal proposition.
How will you choose to invest your money?