How to Build an Investment Portfolio

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Setting up a sustainable, long-term investment portfolio isn’t as simple as picking a few blue-chip stocks and leaving it alone. The process is a thoughtful, holistic endeavor that requires weighing many variables from your life circumstances, planning out which assets to select, and setting some ground rules for success.

Because each investor is unique in terms of goals, risk tolerance and age, there’s no boilerplate template for ensuring a successful portfolio. “What might be appropriate for a family, a couple, or an individual varies greatly from what might be appropriate for an endowment, a foundation or a pension plan,” says Sonya Mughal, CEO of wealth and investment management firm Bailard.

That being said, there are a few general guidelines and principles to follow that can help you get started on the right track.

When it comes to building an investment portfolio, experts recommend adhering to these steps:

  1. Set an investment policy statement.
  2. Figure out your asset allocation.
  3. Avoid risky products and bad behaviors.

Investment Policy Statement

Your investment policy statement can be thought of as an instructional manual for what objectives your portfolio is intended to achieve, how much risk you’re willing to accept, and how long you have until you begin to make withdrawals.

Mughal describes it as “a customized road map that starts off with the individual’s assets, income, and expenses, makes assumptions about a rate of return, taxes and inflation, and provides a clear picture of how much risk the client should take for the portfolio to work.”

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