An investment portfolio that works for you

A hand points at graphs on a tablet screen.

The more an investment portfolio is designed with your needs and personality in mind, the more likely you are able to stick with your plan.

If you’re new to investing (or sometimes even if you aren’t), the fundamentals may not be clear to you. Media headlines may have you thinking that putting your money into whatever is trending, or frequently buying and selling, is the key to success. But the truth can be very different.

Effective investing means focusing on your ultimate investment goal, your timeline for when you need the money, and how risk adverse you are when it comes to market ups and downs. Building a strong investment portfolio with your needs and personality in mind can help set the stage for potential success.

Here’s what those three components look like, the decisions you will need to make along the way, and a potentially easier way for you to manage the process.

Basics of building an investment portfolio to meet your needs

1. Goals

Investing is much more than a way to save for retirement—it has the potential to help you reach a variety of financial goals. Each goal should have a dollar amount attached (even if it’s a range of the money required), so that your target is clear. You can think of goals in three categories:

  • Short-term, such as a wedding or a dream vacation (that RV looks nice!)
  • Medium-term, such as buying a home, paying off student loans, or starting a business
  • Long-term, such as saving for retirement or creating financial independence

2. Timeline

This is based on when you’re going to need the money. If you’re focused on a shorter-term goal like a dream vacation, your timeline will condense, which may steer you toward less risky investment choices. Long-term goals can be decades away, but they will require regular attention until then.

3. Risk Tolerance

This can be difficult for individuals to measure. Here’s an example to consider: How would you react if the market dropped by 10%? Do you have a more nervous disposition where you might be tempted to pull your money out, or would you be able to think long term and look to a potential market to recovery—and possibly see the drop as an opportunity to buy?

Putting the basics in context

The next steps in building an investment portfolio require an understanding of what the markets are doing today, might do in future, and what that might mean. Investors building a portfolio in today’s market may ask themselves:

    • What stocks, bonds, or other investments are likely to perform in this challenging market environment?
    • Should I buy, sell, or wait out market volatility?
    • How should I allocate my money to help reduce the potential for losses?

Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss, including in a declining market.