What makes an ideal and well-balanced investment portfolio?

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What makes an ideal and well-balanced investment portfolio?
With options in the investment and savings space galore, a lay men who intends to make some fine financial investment decision for meeting his long term financial need is left confused in the realm of so many investment products. To top it up, financial advisors and agents who should though offer financial solutions that prove apt to meet financial goals of the client, in their interest engage in horrendous mis-selling.

The scenario thus compels a laymen not to blindly trust the services of the advisor and in fact make sincere effort and develop some degree of financial intelligence. All the more, some of your preliminary concerns in building an ideal and well-balanced portfolio should be investing in line with your risk profile; including tax-efficient assets; hooking on to the asset allocation strategy; cash flow needs, all this necessarily in congruence with your long term financial goal. At the same time, these are few of the basics and an ideal portfolio for an investor can be denied as unsuitable for the other, hence it is totally a subjective matter.

Nonetheless some of the basics need to be strictly adhered to for building an efficient investment portfolio. One as per the risk profiling done to determine the risk and the anticipated return need to decide on the investment product i.e. exercise diligent asset allocation exercise. The investment horizon should also be the consideration and choice between the different asset classes should be made at this stage.

Typically, efficiency of the portfolio is not decided by the size but by the basket of products one holds. In case you are an amateur in the area of investment, the general tenet holds that one can be aggressive and bet on high risk products. Nonetheless, the portfolio needs to be well balanced with a mix of both fixed income investment products and high risk instruments, as then only any likely risk can be offset by the fixed returns fetched by the fixed income instruments. Balanced funds and ETFs can be opted at the initial stage to learn the intricacies of the investment world and once you get a grasp of it, investment in other risk-instruments is suggested.

Through adequate research, find out products that are available at low cost as in case of investment in stocks, opt for the online route as it attracts lower brokerage. Also, to lower the cost of investment, diligently calculate your cash flow requirements in the near future, as redeeming several of the investments before the maturity date require you to pay a penalty. Similarly mutual funds also attract an exit load in case the redemption is made at an earlier date.

Taking a heed of these and other few considerations that require you to timely review and rebalance your portfolio (know why you need to rebalance your portfolio), experts suggest to have a mix of a term insurance cover, a health plan, not over 2 or 3 equity scheme, few fixed income instruments and tax-saving and efficient instruments in your investment basket. The proposed mix is assumed to assist you well for your long-term financial needs. Also too many products not only shall create a havoc for you in terms of management but also through overdiversification could mean lower returns. Know how?


Story first published: Monday, April 7, 2014, 13:08 [IST]
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