A balanced investment portfolio is one that provides you with the maximum profit potential while staying within your investing time frame and risk tolerance. This varies a lot from one person to the next based on such factors as income, age, and personality. You should create an investment portfolio that matches your financial targets.
Your Risk Tolerance and Your Investment Strategy
Your risk tolerance is a major factor in determining what percentage of your investments will be aggressive and what percentage of your investments will be conservative. Most people near retirement avoid having a large portion of high-risk, high-reward investments in their investment portfolios. Instead, they tend to have the major portion of their investments in stocks in low-risk investments and stocks that pay dividends on a regular basis.
However, most people in their early working years want to make their investment portfolios lean towards the aggressive side with a long-term outlook. The main thing to understand is that regardless of whether you are on the low-risk side, the high risk side, or somewhere in between, you will want to have a portion of safer investments and a portion of more aggressive investments. It is just a matter of what percentage you invest in each.
The Idea Behind a Balanced Investment Portfolio
The main idea behind developing a balanced investment portfolio is to diversify your investments so that your investment portfolio will not be ruined by one investment going bad. Diversifying an investment portfolio is simply a matter of purchasing a variety of different types of investments, as well as buying a variety of investment subtypes.
In other words, a diversified investment portfolio might include a couple different types of bonds, four or five different types of stock, and some CDs. As your investment wealth grows, you will have more ability to diversify your investment portfolio. Make sure you have plenty of proven stocks in your portfolio so that you will ride each upward market trend without suffering too many major losses during downswings.
Investment Portfolio Strategy
You may want to follow some of the popular investment portfolio strategies floating around. Each tends to fit a certain risk tolerance. You can strategically allocate your investment portfolio assets so that you will have predictable long term return, or you can allocate your investment portfolio to target current trends.
One of the more popular investment portfolio strategies involves allocating current investment portfolio additions to those parts of your stock investments that are on a downswing. So you purchase your stocks when they are below peak each time you add to your investment portfolio. If you sell any stock, you would sell the stock closest to its peak value.
The bottom line is that you should choose an investment portfolio that matches your risk tolerance and wealth goals. Just make sure you keep it balanced. As your needs and risk tolerances change, you can change your investment portfolio.