Asked on 05 Apr 2019
Welcome to the world of investing! Before diving deeper I’d like you to remember that the word “investments” does not always point to high risk and high return, “stock gambling” behaviour. Perhaps you have some friends who are incredibly active and interested in the stock market, peers who know little about it, and peers who want nothing to do with it. The good news is that no matter where you stand on this spectrum, this time-proven advice will remain helpful.
On one side of the spectrum are those who claim to have higher risk appetites and actively “gambles” with stocks, often holding a portfolio of risky products. They are likely to neglect the safe, reliable long-term approach. On the other side of the spectrum are ones who avoid the stock market out of fear, and are ones who are literally avoiding the most powerful and effective means of saving for their future!
Some might say it is possible to achieve huge financial gains and possibly even financial independence without investing over a long term. Perhaps this is true, but it requires much risk, expertise, and a lot of luck. The odds are going to be against you.
A good long term portfolio will have odds very much with you.
So what makes a good portfolio of investments?
Each person reading answers here on Seedly come from a specific, individual background. Factors such as age, geography, income bracket, and family situation. What makes a good portfolio to you may not necessarily make a good portfolio for someone else.
Here I’m going to assume you have about 30-40 years before retirement. With a long time horizon, the magical thing called “Compound Interest” will be the driving factor. All it really means is that your money grows. And each growth will grow on top of that growth. You get the picture: accelerated growth. Exponential curve upwards. Pretty fantastic. And if you can grow it over 40 years, you’ll get to see its really awesome potential.
A good portfolio with a long time horizon leverages on this magical growth ride compound interest offers. A good portfolio and a long time horizon will give you the opportunity to gain good returns (e.g: 6% as an example) on your money, year after year, with minimal time and energy. You won’t need to be actively monitoring your investments, nor be swayed into action by investment media or your very enthusiastic friends.
⭐️ In short: a good portfolio takes a broad mix of stocks. ⭐️ From high risk, high returns, low risk and low returns, a broad mix of stocks includes a huge variety.
Why? Simply because it is impossible to predict what the stock market will do and how it will perform over the next year, next month, and next day. But it’s remarkably easy to predict what it will do over the next 30-40 years, simply because the inevitable ups and downs in the market will cancel each other out, leaving you with an underlying, long-term, upward trend.
Sure, it’s not the 30% growth in value like the one your friend’s bragging about, a short term win. But you can smile to yourself knowing you have a good compound working for you over the next 30-40 years, giving you the eventual returns you seek, without having to do anything or react to the explosive media and news coverage.
Peace of mind and growth makes a good portfolio, and it begins with a big bucket of varied stocks.
Is short term investing bad? No, certainly not. It simply requires much more time and effort, and a heart that can handle the major ups and downs in the stock values, and tide through that emotional ride.
Even if you have a high risk appetite, always ensure you have a good portfolio that is safe and offers good returns over the long run, before taking leaps of faith with short term, high risk/return gambles. Your future self will thank you for this wise move!
The answers that the rest have given are really good! I just want to add on the more subjective element of investing.
TL;DR Look at your risk-appetite, interests and understanding of the industry, time you have to monitor investments and expected returns
This depends on how much risk you are willing to swallow, and whether you are comfortable with the downsides that comes with the risk as well. As others have mentioned elsewhere, younger folks might have more risk appetite because they still can rely on your salary to sustain yourself but as you grow older into retirement, a more defensive strategy might be needed.
Interests and Understanding
When you have a better understanding of the industry, you might uncover insights and trends that most investors may not have, which can play to your advantage. Prior or current experience working in a particular industry can be quite helpful. For eg, my friend who worked at a semi-conductor MNC before shorted the industries' shares.
Time You Have to Monitor
Some individuals have much more time to monitor their investments than others. More volatile stocks, such as tech, may require more attention than stocks from more mature industries.
This is again quite subjective and intuitive, but is probably worth paying attention to and figuring out what goals you have.
Hi there! I share the same thought as Hariz whereby a good portfolio is one that makes money over the long run. However, to takes things a step further is to analyse the magnitude of growth. There are many ways to benchmark a portfolio. You can peg it to inflation rate, STI, DJIA, S&P. But personally I feel that a good portfolio is one that, at the very least, beats inflation rate.
A good portfolio makes money over the long run. That's pretty much it. But there are a few things that have been recorded to make sure future performance is a little more predictable.
Diversification. Your money is spread over geographies, asset classes, industries.
Cost. As low as possible without compromising on quality. Sometimes it 'pays' to pay for good advice.
Investment horizon. Making money in the short term can be seen as luck. But making money in the long term is almost a given. Markets usually slope upwards over 10 20 30 year periods. Stay invested, invest for a long term, don't react to quickly to short term bad performance.
Follow these 3, and you'll build a good portfolio. :)
Hi! I think that depends on your risk appetite. Generally, a portfolio is determined by asset allocation and sector allocation.
If you risk-seeking, you may want to look at an aggressive portfolio, comprising of 80% equities and 20% in bonds. If you want a balanced portfolio, you might be looking at 60% equities and 40% bonds. If you are risk averse and want a conservative portfolio, you might be looking at ~30-40% equities and the remainder on bonds.
After deciding on your asset allocation, you may look to diversify your portfolio by buying stocks from industries that have low correlation with one another, to maxmise your returns while minimising risk.
Moreover, given the fact that we are at the late stage of the economic cycle, you may want to increase your exposure to stocks from industries that are more "defensive" in nature and less susceptible to economic downturns. These industries include consumer staples, healthcare and utilities.
Hope this general guideline gives you a better idea on how to manage your portfolio!
A good portfolio is one that has the highest probablity of achieving your objective for setting it up.
Therefore, objective comes first.
Then the amount invested.
Then the asset selection, then the asset allocation.
Then the discipline to carry through the plan...and change the portfolio if conditions demand.
Portfolios are good only until they are....then they are not!