Building an investment portfolio as a beginner can seem daunting, but with some basic knowledge about investing and setting aside some money to invest, anyone can get started. Here are some tips for How to build a beginner investment portfolio looking to build their first investment portfolio:
Understand Your Investment Goals
Before you start investing, think about what you want to achieve. Are you investing for retirement decades down the road? Do you want to save up for a major purchase like a house? Are you looking to supplement your income? Your investment goals will help guide how you construct your portfolio. Some common investment goal timelines:
- Short-term – Less than 3 years
- Medium-term – 3-10 years
- Long-term – More than 10 years
Those with longer time horizons may be more willing to take on risk for potential higher returns, while those investing short-term may want lower-risk options to preserve their capital.
Know Your Risk Tolerance
How much risk are you comfortable taking on? Can you stomach market swings and potential losses or do you need lower-risk investments? Your risk tolerance level can help determine which investment types may be a good fit for your portfolio. Those with low risk tolerance may want to stick to things like savings accounts, money market funds, certificates of deposit (CDs), investment-grade bonds, and blue chip stocks. Moderate risk takers may add some small/mid-cap stocks. Those with high risk tolerance may incorporate speculative stocks, alternatives, and foreign investments into their portfolio.
Diversify Your Investments
Having a diversified mix of investments can help reduce risk. Some ways to diversify:
- Invest across asset classes – stocks, bonds, real estate, cash, etc.
- Invest in different market sectors – technology, healthcare, energy, financials, etc.
- Invest in domestic and international markets
- Invest in individual securities like stocks/bonds along with funds that hold baskets of securities
A simple starter How to build a beginner investment portfolio portfolio might include a mix of stocks and bonds across sectors plus an international component. As your portfolio grows, you may add other assets like real estate.
Choose Your Investment Accounts
There are various accounts for holding investments that have different tax treatments:
- 401k/IRA – Tax-advantaged accounts for retirement savings
- Taxable brokerage account – Investments are subject to capital gains/dividend taxes
- Savings accounts – Lower return but funds can be withdrawn easily
Consider using retirement accounts like 401ks and IRAs to get tax benefits. Higher growth investments can go in taxable brokerage accounts. Keep some savings in cash accounts for emergencies.
Build Your Portfolio with Specific Investments
Here are some common investment options suitable for How to build a beginner investment portfolio:
- Index funds/ETFs – Offer instant diversification by holding baskets of stocks that follow market indexes like the S&P 500. Low cost options.
- Individual stocks – Allow you to invest in specific companies you believe in. Higher risk than funds. Consider “blue chip” companies that are well-established.
- Bond funds/ETFs – Provide diversified exposure to portfolios of government and corporate bonds. Look for broad market/aggregate bond funds.
- Individual bonds – You collect interest payments and principal at maturity. Focus on short-to-intermediate duration, investment-grade bonds.
- Savings accounts – Low risk place to park cash and earn a bit of interest
- Money market funds – Very low risk mutual funds that invest in short-term debt instruments
- CDs – Issued by banks, pay a fixed interest rate if held to maturity
- Real estate – Can provide diversification. Options include REITs and real estate crowdfunding.
- International – Gain global diversification through international ETFs or mutual funds.
- Alternatives – Further diversify with things like commodities, but limit to <10% of portfolio.
Start Investing with Minimal Amount
Don’t wait until you have thousands saved up. Even smaller amounts like $500-$1000 can be invested in stocks, ETFs, and mutual funds. Use dollar-cost averaging by contributing consistently each month. Reinvest dividends and capital gains to accelerate your portfolio growth.
Monitor and Rebalance Periodically
Check in on your portfolio several times per year and rebalance to get your asset allocation back to your target if it drifts. You may also adjust your portfolio over time depending on life changes and evolving investment goals. Automated rebalancing options are offered by many investment platforms.
How to build a beginner investment portfolio is simpler than it seems when you take a step-by-step approach. Focus on your goals, risk tolerance, and time horizon as you choose your investments. Stick with a buy and hold strategy while periodically monitoring and rebalancing your portfolio.
- Investopedia. (2022). How to Build an Investment Portfolio. https://www.investopedia.com/articles/basics/11/build-investment-portfolio.asp
- NerdWallet. (2022). How to Build an Investment Portfolio. https://www.nerdwallet.com/article/investing/how-to-build-investment-portfolio
- Merrill. (2022). Make investing simple with Merrill. https://www.ml.com/merrilledge/article/build-a-core-portfolio.html
- Ellevest. (2022). How To Build An Investment Portfolio & Investing For Beginners | Ellevest. https://www.ellevest.com/magazine/investing/how-to-build-investment-portfolio