What’s in Your Portfolio?

Your investment portfolio isn’t a briefcase that you carry around or some documents you lock in a fireproof box. It’s the combination of investments that you own.

To start a portfolio that will help you meet your goals, you need to understand how each investment you’re considering works, how much risk it carries, and how it fits in with the rest of what you own. It’s not as hard as you might think.

• Link the investments you buy to the goals you want to reach. Don’t emphasize safety and liquidity for long-term goals or growth potential for short-term goals.
• Avoid complex investments or any investments that nobody can explain in a way you understand.
• Avoid investments with too many restrictions, conditions, or fees.

To expand to the next level, you don’t want to buy randomly. You need a strategy, or plan, that involves asset allocation and diversification. For example, you’ll want to be sure new investments make sense in relation to your portfolio as a whole. If you already own lots of technology stocks, an index fund that owns large, established companies might be a more suitable choice than another Internet start-up.

 

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