What is an investment portfolio and how to build one?
Diversification is key
Diversification is key to reducing risk in your portfolio. By investing in different types and a minimum number of assets, you reduce the negative impact of a single investment or a specific market on the overall return of the portfolio. You can diversify by: asset type (liquidity, stocks, bonds, real estate, commodities, etc.); industry sector (technology, healthcare, energy, etc.); geography (domestic and international investments)
Manage individual asset weights to optimize your portfolio
Asset allocation is crucial to balancing risk and return. Determining the right weight between stocks, bonds, and other asset classes, based on your risk profile and financial goals, optimizes long-term returns. Our tool takes care of this, creating an efficient portfolio with precision to ensure safe management of your financial assets. Portfolio Creator calculates the ideal allocation considering your preferred level of risk or expected return.
Study the past to (try to) know the future
History often repeats itself. Analyzing historical market data provides a deeper understanding of trends and investment behavior over time, enabling more informed investment decisions and less susceptible to short-term impulses. We take care of the data analysis, you just have to choose the historical period to analyze (minimum 3 years for the data to be significant).
Best practices to keep in mind
Investing is boring, but trading is deadly
It is proven that passive investing is more efficient than active investing. This is mainly due to the extreme difficulty in predicting the market or identifying stocks that will outperform it (a skill reserved primarily for hedge funds that invest millions in research). Additionally, transaction costs can eat away at your returns. Once the asset allocation is defined, you need to be patient to minimize these costs, looking for platforms with competitive fees and avoiding excessive trading.
Prevention is better than cure
Regular monitoring (every 6 months or 1 year) of portfolio performance allows you to recognize any need for adjustments to your investment strategy in response to market changes or modified personal goals. Performing a new analysis with the new data created by the market helps keep portfolio risk within desired limits and take advantage of market opportunities by buying undervalued assets and selling overvalued ones.
Learn the art and put it aside
Investing time in understanding the fundamental principles of investing, from Markowitz theory to advanced portfolio allocation methodologies, enhances your ability to make informed and rational long-term financial decisions. If you would like advice on books or additional material, don't hesitate to contact us.