Putting Together An Investment Portfolio
Key Takeaways
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In building your portfolio, you need to consider your investment objectives and goals, investment horizon and available funds
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You need to know your risk profile, and think about creating a well diversified portfolio
Start to build your portfolio by asking yourself these six questions:
How Much Time Do You Have To Invest?
The longer your investment horizon, the more time you have to grow your investments through compounding.
Staying invested for longer periods also allows you time to ride out short-term fluctuations in the market.
If you need your money in the near term, you should look for low-risk products that are easy to liquidate (e.g. Singapore Savings Bonds).
How Much Money Do You Have To Invest?
After accounting for your emergency savings, household expenses, insurance premiums and loan repayments, you will have an idea of how much you have available for investment.
Do not commit to investing more than you can comfortably afford in the long term. Also keep in mind that most investments come with some costs; for example, unit trusts have several fees and charges attached.
How Much Risk Can You Take?
Take note of the short-term and long-term needs of your family – if you have more immediate needs, you should be taking on less risky investments.
Also, if your investment suffers a loss, will it impact your other commitments such as loan repayments? Do not take the risk if you do not have the time to recover from your losses.
Be extra prudent when investing your retirement savings.
You can understand your risk profile better with help from assessment tools such as this risk tolerance questionnaire.
What Are Your Goals?
Work out how much money you need and when you need it for each of your financial goals. This will help you determine the returns you need to reach your goals.
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If you are just starting your career, your investment objective would be to grow your capital
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If you have already reached your savings goal, your investment objective might then be to secure your capital
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If you have retired and need to access your nest egg, you would want to ensure high liquidity or being able to convert your investment to cash quickly. You may also like to earn an income from your savings
A simple way of focusing your objectives is to decide which category you fall into: growth, income or capital preservation.
Here's a sample of what that might look like:
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Growth - Enhance Your Returns |
Income - Maximise Your Income |
Security - Preserve Capital |
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|---|---|---|---|
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Portfolio Emphasis |
Equity oriented |
Fixed-income oriented |
Fixed-income oriented |
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Return |
High |
Medium to high |
Lower |
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Risk |
High |
Medium |
Lower |
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Possible Investments |
Stocks, ETFs |
Dividend-paying stocks, bonds |
Bonds |
What Should You Invest In?
Diversify, diversify, diversify!
Take note of the different asset classes and major types of products.
Compare what are available and check how well they meet your needs and personal circumstances.
Choosing your investment options involves striking a balance between liquidity, safety and returns.
Consider dollar-cost averaging as a means to accumulate the assets you want
Things To Note
Even within asset classes like bonds and equities, the individual securities could be of different quality.
If you have high liquidity needs, you can still invest in higher-risk options as long as a sufficient portion of your portfolio is liquid and easily converted to cash. Some examples might be high-quality, short-term maturity debt instruments like government securities and Singapore Savings Bonds.
Very importantly:
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Do not invest in any investment product you do not understand
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Be wary of products which claim to offer high profits or fast returns, at low or no risk — these may turn out to be scams
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Deal only with financial institutions regulated by the Monetary Authority of Singapore
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Do not be tempted by gifts and rebates — keep your investment goals in mind
Is Your Portfolio Diversified And Performing As Expected?
Review your portfolio regularly and re-balance. You should take into account your current life stage and financial status.
Regularly reviewing the performance of your investments helps you identify if the investments are on track to achieving your goals. You should do this even if you are a passive investor – investing mainly in unit trusts or funds that track indices.
If you have products that are more volatile, you should monitor those more carefully, in case the market is at a downturn when you need your money – you may then choose to liquidate sooner.
Staying informed on current affairs and market trends can help you make timely decisions too.
