Building a financial portfolio can be a daunting task. There are literally hundreds of different investment types available, each with dozens of more specific ways to save your money and make it grow. So how do you sort through all your options and pick the best choices for you? The first thing you do is determine what some of the basic categories of investments are even available. Once you have a good sense of your investment options, you can sit down and create a portfolio. Always remember that diversification is a key aspect of creating a solid investment portfolio.
The first and simplest place to put your money is in the bank. Banks generally offer the safest investment options, but don’t expect to gain much if you put your money there. A standard saving account will offer little return, but makes your money very easy to access should you need it on short notice. Any good investment plan includes some cash. Banks also offer Certificates of Deposit, where you get a better interest rate, but your money is committed for a specified period of time. CDs are insured. Money Markets can also be invested in at a bank. Money Markets offer better returns than CDs, but with slightly higher risk.
The next type of investment to consider are mutual funds. These are investments where many investors pool their resources together to collectively purchase a wide range of stocks and bonds. The fund is then managed by a professional, or indexed to a major benchmark (such as the S&P 500, or something similar). For managed funds, the fund manager picks the investments for that make up the fund. The advantage to mutual funds is a built in level of diversification. A typical mutual fund will own dozens to hundreds of different stocks or bonds. Some funds will even have both stocks and bonds, in various proportions. There are hundreds of different mutual funds available to invest in. Start with some of the big fund companies, such as Fidelity, Vanguard and Janus. They offer good fund with established track records.
If you are big more daring and want to have more control over what specific stocks you own, you can always open a brokerage account and buy stocks individually. Doing this properly can entail a lot of time on your part, but the rewards can be great if you pick the right stocks. Of course, if you pick the wrong ones, you can loose a lot of money. Over the long term, the stock market is a good investment, but for investment periods of less than a year, there can be considerable risk in buying individual stocks.
Moving away from stocks, there are many investment opportunities in real estate. Buying property can be a great way to diversify your investments, although the initial amount of money you will need is likely to be quite high, especially compared to something like a money market or mutual fund. Buying real estate also has other considerations, such as property taxes and the cost of maintenance of the property once it is bought. Certainly if you have a large amount of money to invest, real estate can be a great way to add to a portfolio.
Investors who are willing to do a lot of homework can look in to buying commodities such as gold or silver. Investing in these can be be risky and often involves a substantial initial investment. Getting the money cashed out of these investments can take more time than stocks and mutual funds as well. But in a large portfolio, they can be a great way to diversify.
It should be noted that there are many things you can buy that may seem like good investments, but really aren’t. Anything that automatically looses value, such as cars, boats, motorhomes, and your great uncle’s llama farm, are generally NOT considered investments. They can be fun (especially the llamas), but you aren’t going to make money buying them.
Remember, when you are planning an investment portfolio, diversify your investments. A good portfolio will contain some of many of the above options – a few stocks, mutual funds, and some cash. If you have enough money for a property investment, that’s a good addition as well.