An investment portfolio refers to a set of assets that an investor owns with the aim of getting substantial returns. An individual’s asset allocation depends on his/her risk tolerance. Investors acknowledge that losses and profits are part of the game. Allocate funds to different assets as a way of reducing your risks. Proper diversification is the key to a good investment portfolio and the ultimate growth of your investments.
Investment asset classes for diversified portfolio
- Stocks. This class of assets should consist of about 60% of your investment basket.
- REITs. In your investment portfolio, this should be an average of 20%.
- Cryptocurrency. Set aside about 10% of your cryptos for investment.
- Precious Metals. Allocate about 10% of your funds to precious metals.
- ETFs. This type of investment should equate to about 10% of your funds.
You should consider the following assets when creating your portfolio as an investor.
Individual stocks are one of the viable investment options. This is largely due to the fact that in the long run, stocks tend to bring substantial returns to the investor. As such, this class of assets should consist of about 60% of your investment basket. Further divide this portion of your investment portfolio into 3 categories; growth stocks, value stocks, and real estate investment trusts (REITs). Out of the 60% set aside for stocks, allocate about 40% to the growth and value stocks each and 20% to the REITs.
These are the shares of companies whose growth rate is expected to exceed the market average. Such firms usually do not pay dividends to their stakeholders since their strategy involves reinvesting the obtained returns for growth acceleration. While you will not get dividends, growth stocks are suitable for your investment portfolio since they tend to outperform value stocks. As such, you shouldn’t be necessarily alarmed about them making losses in the short term. Some of the growth stocks to consider include Shopify, Spotify, and Zoom.
This class of stocks consists of shares that trade at a lower price compared to fundamentals such as sales, earnings, or dividends. Unlike the growth stocks, value stocks pay dividends. Their good balance sheet and consistent revenue are also key reasons why you should include them in your investment portfolio. Viable examples of value stocks include P&G and Clorox.
A real estate investment trust (REIT) is a publicly traded company that owns or finances properties to make profit to shareholders. On the one hand, REITs are subject to price fluctuations; just like stocks. This is one of the key reasons why the portion of REITs in your investment portfolio should be an average of 20%. However, this form of real estate investment has certain benefits that warrant its inclusion in your portfolio.
To start with, they tend to have stable and substantial dividend yields. Additionally, they are known for their competitive performance in the long-term; an aspect that makes them suitable for both conservative and aggressive portfolios. As an investor, REITs will also expose you to an expansive group of real estate assets that are well managed. Another benefit of including REITs in your investment portfolio is its liquidity. With this, you can be sure that the publicly listed REITs shares trade aggressively in the key stock exchanges.
Coin Market Cap estimates that there are about 1500 cryptocurrencies. While some of these virtual currencies are of a small value, investing in cryptocurrencies in general is a suitable addition to your investment portfolio. This is largely because they are volatile; an aspect that results in numerous tradable opportunities. Additionally, you can earn substantial returns by investing in large cryptocurrencies such as Bitcoin. For instance, at the time of writing, Bitcoin price passed $50k surpassing Facebook in market capitalization. Set aside about 10% of your cryptos for investment.
One of the best ways of investing in Bitcoin is Dollar Cost Averaging Crypto (DCA) method. It involves investing a fixed, smaller amount of money into bitcoin at a regular interval (every month, week or even day). Here’s a list of best DCA cryptocurrency exchanges to use.
You can also read our article on how to invest in Bitcoin in the USA.
Precious metals are also suitable in diversifying your investment portfolio and hedging against the risks in the market. It’s important to note that gold is not the only precious metal than one can invest in. there are other viable options such as silver, palladium, and platinum.
As for investing in gold, it is considered to be a reliable store of value especially in times of financial or political instability. Additionally, gold remains valuable even during inflation. In comparison, the prices of the other precious metals are based on their use in industries as well as their positioning as a reliable store of value.
In your investment portfolio, allocate about 10% of your funds to precious metals. The mere fact that they are a sure store of value makes them a component that you can’t ignore when creating your portfolio as an investor. For instance, in the 1970s, gold was trading at a constant price of $35. Currently, it is valued at over $1,700 per ounce. With this in mind, consider it as a long-term investment and a suitable means of reducing investment-related risks.
Just like the other class of assets mentioned in this article, ETFs help in reducing the monetary risks for an investor. ETFs are a suitable diversifier in your portfolio since it combines the individual securities’ trading flexibility with the beneficial components of index mutual funds. You’ll also get to benefit from the tax efficiency and low expense ratios associated with this class of assets. This type of investment should equate to about 10% of your funds.
The key to a profitable investment portfolio is diversification. Allocate your funds to different class of assets in a way that will lower your risks and increase your rewards. As noted in this article, stocks, precious metals, ETFs, and cryptocurrencies are essentials in any portfolio; whether it is a conservative or aggressive one.