5 steps to investment portfolio

investment rules | pfaasia.com

How should I construct my portfolio?

These are the suggested steps you can set up for investing success:

Step 1. Decide on your asset class mix

Start with “110-your age” rule to put the percentage in equities/shares. So if you are 40, put 70% (110 minus 40). If you would like to add physical assets and a little cash to the mix, maybe combined your stock and real estate allocation to 75% , bond allocation to 20% and 5% cash.  Be careful not to keep too much of your investment portfolio in cash since inflation will make cash worth less overtime.

Step 2. Decide your allocation within equities

Within equities, decide how much you want to allocate to growth versus value stocks. Growth stocks may be in medium cap category and has been both higher risk and higher return than large cap which is in value stocks.

Step 3. Decide if you want to be an active or passive investor

Do you enjoy learning the technical and fundamental analysis and reading charts ? If you do, then you can select the stocks or funds by yourself. Otherwise, you can invest in the market “index” fund (own a little bit of every stock) and makes you a passive investor.

Step 4. Research the investment fees and costs

Whether you choose to invest directly into share market, pick your own actively managed unit trust funds or outsource to a investment professionals, there will be brokerage or fund management fees involved.

These fees, usually range from 1%-2% of your investment will eat into your return, so make sure you know how much you’re paying for the fees and advice you solicit.

Step 5. Keep investing, stay invested

You may need to spend a bit more time monitoring the market movement if you decide to be active investor. After you’ve spent months researching an investment then don’t panic every time it moves.  Buying and selling too much is one of the main reasons investors under perform the market.

For passive investing, One way to track your progress is to measure against the investment benchmark. Are your funds perform on par or under perform ?

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