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The Best Way to Build a Strong Portfolio
An honest risk-assessment
Think about how much risk you are willing to tolerate:
- If you are looking for quicker returns, you may prefer a more volatile portfolio of individual stocks, ETFs, or high-risk mutual funds.
- However, if you want to build your portfolio for retirement or savings, you might desire a low-risk portfolio of CD’s, bonds, or low-risk mutual funds.
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Diversify your investments
Having an effectively diversified portfolio will ensure that if one of your investments moves down, your overall investments will still keep you moving forward.
Mutual funds are a good way to diversify because they are already diversified to represent the index markets.
Your investment time-frame
Decide for how long you want to invest to best evaluate your portfolio for the future.
A short term investment portfolio will likely be riskier than long term retirement portfolios.
Minimize Your Costs
Some key details that can really influence how well your portfolio performs:
- Taxes. Understand how your taxes can affect your investments, and even limit how well they perform.
- Trading fees. It can either cost or save you some money if you're paying attention to it.
Adapt and overcome the market
Don't forget about your investments. A market crash can spell disaster for a lot of investors' retirement and savings funds.
Be aware of what you invest in and pay attention to the big stuff.
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Common investment questions
Two of the most common investment questions are "what do you invest in " and "what are the best investing strategies"?
The best investing strategies are...
Shady investment advice
Bad investing advice can come from many quarters, such as wealth expos or financial advisors. If anyone promises you any type of return over 12%, 99% of the time, they are probably playing you.
There are great financial advisors out there, but many people who sell investment products just want your money. However, it's not that hard to invest for yourself.
How to avoid bad investment advice
- Never buy a financial or investing product from someone you just met.
- Getting returns over 12% per year is ridiculously hard. If it sounds too good to be true, it is.
- If you don't understand it, don't invest in it.
- If one of your friends recommends an investment that's making them a lot of money, they are probably suckers too. If you see the "results not typical" on any marketing materials, move on.
- There are no "secrets of the super-wealthy" that anyone will sell you for $500 or that you can take advantage of unless you have hundreds of thousands of dollars.
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Investing
... is the trading of your money today for a lot more money in the future. It is a high yield over the long term.
What happens to your money
Banks don’t like to give away their money. That mindset is reflected in the interest rates of checking and savings accounts of 0,5% and 0.9% avg. annual interest respectively.
When you deposit your money in the bank, the bank turns around and invests that money at 7% a year or more. After they collect their profit, they give a tiny shaving of it to you.
Portfolio and Diversification
- Your portfolio reflects your long-term wealth building investment strategy – not the short term. It includes everything you own. Your retirement accounts, your investment accounts, even your home are types of investments.
- Diversification is a way to describe owning multiple types of investment assets. Diversification is smart because you both protect yourself from failure and position yourself to take advantage of multiple robust methods for building wealth.
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6 ideal investments for beginners
- If you have a 401(k) or another retirement plan at work, it’s very likely the first place you should put your money— especially if your company matches a portion of your contributions.