How to Set Up Your Own Investment Portfolio

You know your investment aim; you know your current position and you know your investment risk profile. But investment remains a vague term. So what should you choose to put your money in?�

First, make a list of investment options that are available to you. Typically, investment options are stocks, bonds, commodities, mutual funds or other derivatives.�

Stocks belong to a group of higher risk investment compared to government bonds and even commodities. Mutual funds, derivatives or other investment opportunities you might have, have widely varying risks that pertains to the terms and conditions of each investment product.�

If you are unable to find an investment with a risk profile that suits you, it may be a good option to explore the countless variation of products in mutual funds and derivations.�

Categorise each group of investment options into different risk levels and distribute your investment portfolio into the separate groups to diversify your risk. How much you put in each group is determined by your investment target and strategy. Classifying them into broad groups help you in defining where your money should go to and also keeps your money in more or less independent investment vehicles. This gives your master plan a basic structure.�

Within each group of investment option, you can further classify them into high and low risks groups. For example, penny stocks form the high risk group within stocks while blue chips contain lower risks.� This allows you to fine tune your risk management of your investment portfolio. You can continue to classify each subgroup into smaller and smaller group as long as they are meaningful to you.�

However, do not seek to overdo it.� Classification helps you manage choices, but being able to classify choices does not necessarily mean having enough knowledge on them. It may be that you are simply classifying them based on superficial comparison. Over classification tend to give people a false sense of security because they feel that they have researched thoroughly enough, leading them to overlook the risks involved.�

Keeping the basics of your master plan in mind, you can now micromanage within the portfolio of each group and subgroups. From time to time, zoom out to the major groups and review you actual portfolio with your plan. Are they in sync? If they are not, then you will need to look at where have you gone off track.�

Other than tracking your own progress, you will need to re-evaluate the level of risk you have assigned to each group. Risk associated with each group may change over time, your own needs and priorities will also change, therefore requiring you to update your investment plans. The more finely divided the subgroups, the more frequently you will need to review them.�

It is important to set up a structure for your investment portfolio before you attempt to build it. Have your master plan written down somewhere so that you can always refer to it. While you need not follow your plan to the extent where there is no flexibility, you should always stick closely to your plan.�

A well though-out plan will always manage risk better than decisions made on impulse.

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