Investing during a pandemic is a two-way street. The market sentiments and dynamics have seen a major change since the pandemic has hit the world. Even laymen and other investors who showed little or no interest in share trading are now trying to figure how to invest in share market online. This makes it even more significant to learn imperative steps before building an investment portfolio.
Here are a few things that an investor must keep in mind while building an investment portfolio-
1. Understanding of the Market
"The stock market is filled with individuals who know the price of everything, but the value of nothing." — Phillip Fisher
An informed investor wins the game! The first and most important step before even beginning to create an investing portfolio is to have a thorough grasp of the capital markets. Learn the fundamentals of stock trading, how to invest in different asset classes as per the risk appetite, and other elements before attempting to construct a portfolio based on that knowledge.
The knowledge about the markets will help you in deciding where to invest in and where not to.
2. Investment Goals
"In investing, what is comfortable is rarely profitable." — Robert Arnott
The next step is to decide on your investment goals. Ask the where, what, when, how and most importantly why you wish to invest. Start thinking about aspects like what do you expect to benefit from this investment in the long run. Determine your time horizon and see whether it fits your goals, such as purchasing a home, marriage, your child's schooling, purchasing your favourite automobile, your parents' retirement, or even your own.
3. Risk Appetite
"The biggest risk of all is not taking one." — Mellody Hobson
Analyzing the risk-taking capacity is one of the most significant aspects of building an investment portfolio. Compare the risk to the reward carefully and assess the risk-reward ratio. Consider factors like inflation, recession, declines, changing interest rates and time horizon, based on which your risk will be affected. If you are a high-risk taker, you may choose to trade in higher-risk stocks and bonds, and vice versa.
Thus, your risk appetite will decide your course in the investment field.
4. Disciplined Investment
"The individual investor should act consistently as an investor and not as a speculator." — Ben Graham
Disciplined investment is as important as having a regular source of income. Develop self-awareness and plan your investments in a manner that when you retire, you have sufficient funds to manage your cost of living. Read about investments, keep learning about the new aspects from time to time and develop a systematic plan on how you wish to invest at various time intervals.
5. Considering the Taxation
"Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this." — Dave Ramsey
Taxes will be incurred as a result of your investment portfolio. Select the appropriate investment for your portfolio to avoid tax obligations.
Consider investing in areas with lower taxes and exit burdens so that your return is both large and sufficient for you.
6. Regular Monitoring of Investments
"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." — Peter Lynch
Your investment portfolio will consist of shares, bonds, commodities, etc. Thus, you will have to ensure that you examine and keep a regular check on all your investments to know your position in the ever-changing market. Continuous monitoring will help you cut down losses and protect your portfolio. You will be easily able to decide when to enter and when to exit any investment.
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Stay invested!