How to Build a Well Balanced Investment Portfolio?

Sonic Team

Author

Date of publishing : Jan 30, 2023 , 10:00 AM

"Never Put All Your Eggs in One Basket"
This is a very old saying but relevant today as well. A well-balanced investment portfolio is a perfect example of this. The goal of investing is to achieve financial independence in your lifetime. A well-balanced investment portfolio is the combination of all assets that you own. If one asset didn't perform rest will automatically rebalance and optimize your profits.

But do you know what is the right asset allocation for your goals? Do you know how to rebalance your portfolio when markets move away from your expectation or when certain assets suddenly depreciate or appreciate?

Here are some easy tips on what is a well-balanced portfolio and how to create a balanced diversified investment portfolio.

What is a balanced investment portfolio?

A balanced investment portfolio incorporates a broad range of asset types, such as equities, bonds, T - bills, cryptocurrency and cash, to spread risk and optimize profits. The precise asset mix will depend on a person's investment objectives, level of risk tolerance, and time horizon. A well-balanced portfolio often consists of a combination of investments that provide income as well as growth, as well as a mix of investments that are located both domestically and abroad. To maintain the appropriate asset allocation, it should also be evaluated and rebalanced regularly. Here are some factors to look at before making a well-balanced investment portfolio.

Know your risk appetite

Risk appetite is the degree of risk that a person is ready to accept to get the desired amount of return. It is crucial to take this into account when designing a portfolio since a higher risk appetite may result in the inclusion of riskier assets such as crypto, and equity while a lower risk appetite may lead to a focus on safer investments like T-bills and stablecoins. To maintain the portfolio's alignment with the individual's investment goals and risk tolerance, it is crucial to keep in mind that risk appetite is subject to change over time and should be constantly monitored. You may afford to take on greater risks if you have a high salary and are in a secure position in your work. In this situation, you may put your attention on the future and start saving money for things like retirement. However, if you are having trouble making ends meet and have unstable employment, you might want to make accumulating an emergency fund your top priority. This implies that to build a highly liquid asset for yourself that would support you if you lose your work, you would need to concentrate on cash and cash equivalents like T-bills.

You can explore T-bills on the sonic wallet.

List down your goals

Make a list of your short-term, mid-term, and long-term financial goals before you start creating your well-balanced portfolio. Vacations and home renovations are examples of short-term objectives that should be completed in less than 3 years. For these types of goals you can choose T-bills and a small portion of stocks. Mid-term objectives can be set for periods of 3 to 10 years and might include things like paying for children's college tuition fees for such you can explore a mix of T-bills, stocks, and cryptos into consideration. Long-term objectives like retirement planning or home ownership might take more than 10 years to complete. For these you can put a major portion in cryptos and stocks. As a result, your investment portfolio should reflect your financial goals.

Review, Restructure and Rebalance.

Review, Restructure, and Rebalance are all important steps in maintaining a well-balanced portfolio.

1. Review: This step involves regularly reviewing the performance of your investments. This allows you to identify any underperforming assets and make adjustments as necessary. It also helps you to stay up-to-date on market trends and economic conditions that may affect your portfolio. You should ideally review your portfolio once a month.

2. Restructure: This step involves making changes to the composition of your portfolio by either selling or buying assets. This is done to adjust the asset allocation and ensure that it remains in line with your investment goals and risk tolerance. You need to constantly monitor where your investments are giving optimum returns to match up with your financial goals. You should ideally restructure your portfolio once every 6 months.

3. Rebalance: This step involves bringing your portfolio back to its original asset allocation. This is done by buying or selling assets to ensure that the portfolio remains diversified and that the risk-reward ratio is appropriate for your investment goals. Rebalancing is important because it helps to control risk and ensure that your portfolio remains aligned with your investment strategy. You should ideally rebalance your portfolio quarterly or every 6 months

It is important to note that the frequency of review, restructure, and rebalance will depend on personal preferences and market conditions.

Create a diversification among asset management.

One of the pillars of wise investment is diversity. Based on the idea that various assets have varying degrees of risk, it involves investing across a range of assets to reduce the impact of risks related to any one asset class. Diversification is possible both within and across investment products. You may, for instance, further diversify a growth portfolio by investing in several sectors and companies, and crypto. You are not dependent on the success of a single business in this way. Instead, you can claim your stake in several businesses. Additionally, you can diversify according to the market value of various firms, such as small, medium, and large ones. Alternatively, you might put money into both local and foreign markets. It might be challenging for you to diversify both too little and too much diversity can hurt you and increase your risk.

Adopt the right investment strategy.

The right investment strategy is the core of your well-balanced portfolio. It depends on person to person and your age. If you're in your teens, I highly advise you to invest in yourself and get a high-skill job that gives you a fat paycheck every month. Before investing I'll advise you to get health insurance and clear your debts. You should always take care of the platform which you're choosing for making the first investment. if you think you need expert guidance, can take free consultations from our sonic wallet experts.

Conclusion

A well-balanced portfolio is one that accurately suits your requirements. It doesn't have to be the same as your spouse, family, neighbors, or a famous business person you admire. An investment portfolio's goal is to provide financial security and independence. It gives you the ability to budget for unforeseen events, secure consistent income, and provide you the financial freedom to cover your costs. By putting money away each month, we build budgeting skills and the consciousness to make responsible financial and future planning decisions.