Scared to start? That’s okay! Your investment portfolio can start small yet still be very effective, and you don’t have to do it alone.
Your investment portfolio is a collection of all the financial assets you own.
It’s not necessarily a single physical or digital space as your assets may be split up in various brokerage and bank accounts. If you already have a collection of financial assets, try creating a portfolio document or using a portfolio tracking application to keep track of everything that you own. Making such choices will help you make sound financial decisions for your investments.
Here are some examples of portfolio tracking applications you can use, which are all available on both your web browser and your mobile devices:
Do note that each of these platforms have their limitations and may not cover the entire range of products available in the market.
Pulling everything together and looking at it as a portfolio allows for efficient financial tracking, implementation of asset allocation, and protection through diversification.
With all your financial assets being under one roof, it will be easy and quick to take stock of what you have. You get to see your current financial standing at a single glance!
After you have determined the appropriate asset allocation that you should have, based on your investment objectives, you will need to implement that allocation. Tracking all of your financial assets will allow you to implement and monitor your asset allocation with ease.
Learn more about investment objectives here.
Diversification helps you stabilise your investment returns. It increases the chances that when one area of the market suffers a major setback, not all of your assets will suffer, and the dip in your financial position need not be devastating at all.
Before you start building your portfolio, it’s important to understand your investment objectives! This will help you determine what types of investments and how much of each type you should be buying.
When you start purchasing assets to form your portfolio, you should try to stick to the asset allocation you have decided upon. Of course, this asset allocation isn’t rigid. You may change it whenever you see fit, such as when your risk appetite changes.
For those using robo advisors, it is typical for robo advisors to give out a questionnaire while or after you have registered for an account. These questionnaires tend to ask questions pertaining to your risk appetite, time horizon and financial objectives to help determine what your asset allocation and portfolio construction should be. Take these questions seriously!
If you haven’t bought any financial instruments before, well, it’s time to start! You’ll need two things:
Online trading has gained traction in the past few years due to its convenience, ease of use, and autonomy. If you’re familiar with financial markets and can do your own research, online brokerage platforms may be an obvious answer to your investing needs. Sure, most platforms do have articles and general advice to guide you along, but at the end of the day, that can only help so much. You’ll be settling your own trades and deciding for yourself as to what best suits your needs. It’s best to start using these platforms once you have a firm understanding of investment basics.
Check out our introduction to investing here.
Most online brokerage platforms nowadays offer a variety of products in a variety of geographical markets!
It may seem that each brokerage has an overwhelming amount of investment products to choose from. That’s true. The financial world is vast and product types are plentiful. To help you out, some of these brokerages do have real human beings on standby.
Dealers and Remisiers
If online broking feels too complicated and stressful, maybe getting tips, ideas and general advice from another human being will be more suitable for you! Dealers and remisiers provide professional advice on financial products and will help carry out trades for you. You won’t need to settle trades by yourself! Of course, this added personal service will come with a higher commission rate (everyone has to make a living, right?).
That said, while using dealers and remisiers may be a less technically demanding way of trading financial products, you should still err on the side of caution. This is because you’re dealing with a single point of contact, which is your dealer or remisier.
Here are some actions you can take to keep your finances safe:
On the other hand, custodian accounts are brokerage-specific. Any purchased financial instruments are held in the brokerage’s custody, and any transactions that involve those financial instruments must be done through the brokerage itself.
Custodian accounts can charge relatively low fees and offer more privacy. However, note that “low fees” isn’t always the case. Look out for all the fees charged for investments held in your custodian account, such as maintenance fees or corporate action handling fees. Not all custodian fees are equal!
Now, it’s time to buy financial assets using your brokerage accounts! However, what should you choose? You have already decided on the allocation between asset classes, but diversification does not stop there! Diversification within each asset class is important as well.
For example, when choosing between shares, you can classify them into different subclasses, such as by geographic location, type of industry, or by the underlying company’s market capitalisation. In general, we would caution against taking very active views on markets.
If you want a “shortcut”, you can consider investing in unit trusts and ETFs. These are basket collections of financial assets like shares and bonds. They’re usually already highly diversified! Some unit trusts and ETFs span across asset classes and geographies, while others have less diversified mandates and are more targeted to an industry sector, geography or theme (or a combination of them).
Do note that you still need to pay attention to the contents of any unit trusts and ETFs you buy to guarantee that, in your overall portfolio, you are diversified in the way you want to be and that your asset allocation is met.
ESG investing
When referring to ESG, we are talking about an investment’s Environmental, Social and Governance practices in conjunction with more traditional finance measures. In recent years, the popularity of ESG investing has skyrocketed as investors have become aware that their investments can achieve more than just returns. Options include ESG bonds, ESG investment funds and ESG shares.
The Core-Satellite portfolio strategy
You can also choose to adopt the Core-Satellite concept regarding building up your portfolio. This method involves a passive portion of your portfolio, known as the “core”, and an active portion, known as the “satellite”. The core should make up the bulk of your portfolio (ideally 60-80%) and provide you with slow, steady, long-term returns, usually aiming to track market indexes. The satellite portion is for chasing returns in higher-risk, higher-return investments, though this does not mean you have to trade them aggressively and all the time!
Interested? Read more about the Core-Satellite strategy here.
Don’t feel pressured to get your portfolio up and ready immediately. Take your time to find the right assets for your portfolio. Besides, as your income comes in, your portfolio capital will grow as well, so it’s important to set a realistic pace for yourself. Several investment strategies make use of disciplined investing over a period of time, such as dollar-cost averaging.
Dollar-Cost Averaging
In Dollar-cost averaging, you split your purchase into separate periodic transactions. You will commit a fixed amount of money to invest in a particular asset on a regular schedule. This aims to benefit from price volatility when you buy and takes away the human element of trying to time the market (on top of the already difficult decision on what to buy)!
Over time, when the values of your financial assets change, your portfolio weightings could well stray far from your initial weights. The current market value of your financial assets determines your portfolio weightings, after all, not the initial amount of money you put in. The market doesn’t care what price you bought at. That information is only useful to you to determine your gains and losses!
Determine which asset classes, or even the subclasses, in each asset class are now over-or under-weight and make the adjustments accordingly by rebalancing what you have and/or allocating new funds towards the underweight assets.
You should periodically review your portfolio and make necessary adjustments to make sure that your portfolio stays in line with your investment objectives. If your objectives have changed, possibly due to a change in financial needs or a boost in confidence, fantastic! It’s time to update your investments to reflect this as well.
Don’t stay passive. It's a bad idea to constantly watch your portfolio, but it's important to do a check-up on it regularly! Every 6 months or every year is a common interval for many investors.
Financial advisors are experts in the world of finance and are equipped with the skills to find suitable investments for you. They provide a human touch to portfolio management! You can engage with financial advisors in banks, insurance companies or search for independent financial advisors. None of them work for free, so of course have to earn fees one way or another, which is fair given the expertise and service they bring to the table. However, it's important for you not to be shy about asking what they make from working with you and then deciding if it's fair for you.
If you want a cheaper alternative, you can consider robo advisors too!
(Do note that most robo advisors use custodian accounts to store your financial assets.)
It is important to do your due diligence to check that any robo advisor or financial advisor you approach is suitable for you. Their advice may differ from one to another and be skewed towards certain financial products.
If you’re interested in robo advisors, read our article here.
Remember that the most important step is not only to track all of your investments periodically but also to maintain diversification. Don’t become so caught up in chasing returns that you forget to protect yourself against possible losses. And don't get so caught up in minimising/avoiding risk that you miss out altogether on potential long term gains to your wallet and the quality of life from investing!
Q1) What are the most important aspects of building a portfolio? Asset allocation and Diversification, what broker you use, following the latest “hot” tips
Q2) True or False. Robo advisors are typically more expensive than financial advisors. FALSE. Robo advisors are typically cheaper than financial advisors.
Q3) After constructing your portfolio, can you just leave it aside? No! Portfolios require constant or periodic attention to ensure that the ever-changing weights match your target asset allocation. Yes, keeping your investments in the back of our mind is best because they will probably go up.
PORTFOLIO BUILDING. COMPLETED. ✅
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#diversification #roboadvisors #assets
MoneyFitt (ProConnect Technologies Pte Ltd) is not responsible for any errors or omissions, or for the results obtained from the use of this information and shall also not be liable for any damage or loss of any kind, howsoever caused as a result (direct or indirect) of the use of the app and its features, including but not limited to any damage or loss suffered as a result of reliance on the app. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. The information contained is not intended to be a source of advice or credit analysis with respect to the material presented. Any ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial, tax or legal professional and independently researching and verifying information. We do not provide any financial advice, nor are we licenced to.
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