While it is possible to let your money sit in a bank and gain interest, this isn’t a valid long-term investment. Rather than letting your money sit in an account and do nothing, invest your money so that you can actively earn more.
Here’s your chance to learn how to build an investment portfolio and some of the basics concepts of investing.
What Is an Investment Portfolio?
An investment portfolio is a collection of all of the assets you have invested in.
Traditionally, assets include:
- Equities (stocks)
- Cash equivalent or money market instruments
Additionally, some assets that some investors are choosing to include in their portfolios include:
- Real estate
- Cryptocurrencies and NFTs
How do you make an investment portfolio? You start investing.
Why Should I Have an Investment Portfolio?
A portfolio can be any shape or size, and there is no one right answer. Everything, from having a bit of extra capital to having multimillion-dollar investments, counts towards your investment portfolio.
The best way to invest is to be informed about where you are spending your investment dollars. The more information you have about your potential investment, the better choices you can make when investing.
The most basic thing you need to understand in all investments is risk.
What Is Risk?
No investment is a “sure deal.” In every investment, there is a chance of losing some, or all, of your investment. Even seemingly stable currencies like the Euro or US dollar have at least a small chance of failure and devaluation.
Risk is an important aspect to understand, because it changes your investment habits and strategies. A person who is risk-averse and does not like the idea of their investments devaluing will be more likely to invest in stocks or more stable opportunities. Meanwhile, a person who is comfortable with risk will be more likely to invest in more volatile options.
No matter if you want to play it safe or risk it all with your investment, diversity is the best thing to include in your portfolio.
What Is Diversity?
It is extremely risky to invest in only one company, industry, or market because if that one part of the economy fails, then you lose all of your investment. Diversification helps protect against that loss by having multiple investments across a variety of markets and assets.
For example, during the tech boom of the late 90’s, some investors spent millions on technology companies. This worked while the industry was growing, but when the tech bubble burst, they lost all of their investments and had nothing to fall back on.
If they had diversified their investments, they would have invested less money and thus gained less growth on their tech investments, but they would have had other investments to fall back on.
How do you diversify your investment portfolio in India? Diversifying your portfolio while living in India is the same as if you were diversifying your portfolio anywhere else in the world. Make sure you invest in multiple assets that are spread out over different industries, geographies, and markets. An easy way to do that is by using Vested. We give you the tools you need to invest across the market and diversify your investment portfolio.
How Much Money Should I Have to Start My Portfolio?
In the past, it was recommended that you have at least $1,000 USD to start investing. However, with digital investing tools, like Vested, you can get started with significantly less. If you have any money set aside for investing, it’s enough to get started.
What Are the Most Common Asset Classes in a Portfolio?
Your investment portfolio can be divided across different asset classes. Each asset class is a group of assets that share common characteristics and structures. Here’s the basics of what you need to know about each class
Equity (also known as stock) represents the ownership of a fraction of a corporation. For example, if a company had 100 stocks and you owned 1 of them, you would own 1% of the company.
The value of your equity is directly correlated with the value of the company. If the company succeeds, your investment will grow in value, but if the company fails, your investment can fall in value. This is where the risk of equities comes, because it is so closely dependent on the growth and development of the company, and no company is immune to failure.
Mutual Funds and Exchange-Traded Funds (ETFs)
If you are a new investor, it can be difficult to diversify your portfolio. Mutual funds and ETFs are potential solutions to this problem while still adding equity assets to your investment portfolio.
Mutual funds and ETFs both work off the idea of combining the wealth of many investors to make more impactful investment choices on the market. For example, by yourself, you only have $100 to invest.
This is nothing when it comes to buying stocks, which makes it almost impossible to diversify and puts you at a higher risk to lose that investment. Investing in a mutual fund would take that $100, and $100 from thousands of other investors, giving the mutual fund $100,000 to invest with.
The mutual fund would then invest in various equities across the market. Any growth from the mutual fund’s investments is returned to the investor. A mutual fund and EFT gives small-time investors the ability to diversify and strengthen their portfolio without having to spend as much up front.
Bonds are the most common fixed-income asset. At the most basic level, a bond is a formal loan between you and the government, municipality, or corporation you have the bond with. You give them a set amount of money, and they promise to repay that money back with interest.
Bonds, especially treasury bonds, are considered some of the least risky investments in the market, because they rely on the government to remain stable. However, as always, there are still risks. For example, if the bond issuer goes bankrupt, they may default on bond payments.
Bonds are typically seen as long-term investments, so there is a risk for the initial interest rate to not be as high as the market inflation rate during that time period. While the bond will still grow in value, its effective value in the market will be lower than when you first invested.
Cash equivalents are investments that are meant for short-term investing that offer high liquidity with low risk. They can be considered cash or items that are similar to cash, such as low-risk securities like bank CDs, treasury bills, commercial papers, short-term government bonds, bankers’ acceptances, and money market funds.
Cash equivalents are the most liquid assets but have the lowest potential growth rate. Even though having cash equivalents isn’t a great place for long-term investments, cash equivalent assets are essential for emergencies and day-to-day operations.
Start Investing Today
You don’t have to be a millionaire to start investing. With Vested, we make it easy for you to start your investment portfolio today. Vested makes it possible to invest in over 1,500 US stocks and ETFs using fractional share investing. Sign up and start building your investment portfolio today.