How to build an impressive portfolio

Making a well-thought-out portfolio is a cornerstone of investing world. It will help you to have a smooth investing experience. Portfolio construction is an elusive balance between the return that you expect from your investment and the risk that you are willing to take. Once you are decided on your return expectation and the willingness to take the risk, it will help you to decide on the type of assets you must invest and the strategy you should employ. Besides this, another most important factor of your portfolio building is your timeframe of investing.

Therefore, your portfolio construction will depend upon the following factors:

Your financial goal and time horizon

You invest for several reasons such as for your retirement, for your child’s education or for an international vacation. Whatever your goals are, articulating them should be the first step in creating your own financial plan. These goals help you in determining how long you will be investing.

Active-passive strategies

You should decide on the appropriate mix of active and passive strategies. It will again depend upon your expectation of alpha and active risk that you are willing to take. If your expectation is of higher returns, you may have to go for active strategies that also entail higher risk. A passive strategy is good for someone who is risk-averse.

Asset allocation

The investing equivalent of a blueprint is an asset-allocation plan. This helps you to decide on your own target mix of stocks and bonds, as well as cash holdings, which might help you in achieving your goals. If you are tempted enough to make emotional, maybe even irrational, moves in response to the market’s short-term movements, an asset-allocation framework can help in keeping you steady.