Navigating the financial maze of stocks, bonds and mutual funds can be quite a challenge. American Century Investments, one of the largest providers of mutual funds and 401K management solutions, offers the following tips to give you the know-how on building a profitable portfolio.
- Establish reasonable goals: What will you need in the future? Here, you should consider how much money you’ll need for your children’s education, your lifestyle, or your retirement. Whatever your vision for the future might be, set attainable goals and develop a concrete plan for achieving them.
- Set an investment time horizon in-line with your goals: Generating immediate cash-flow or saving for your retirement are entirely different goals, and each should be paired with different investment periods. If you’ve got time to buy-and-hold because you’re not planning on retiring in the near future, you might want to consider a portfolio that includes more long-term investments. On the other hand, if retirement is just around the corner, consider a more conservative approach with a combination of short-term low-risk securities like government bonds.
- Establish your risk tolerance: If you’re new to investing, this may not be as obvious as it might seem, and it might take exposure to or research of various investment strategies to identify how much volatility (risk) you can tolerate. Figure out how comfortable you are with the risks you are accepting, and compare that with what you can afford to lose. In general, the longer the time horizon, the large the risk you can accept.
- Always consult a professional (or many professionals): It’s relatively easy to lose money when you make mistakes investing. In order to avoid financial pitfalls, later on, it is often wise to seek professional guidance when putting together a portfolio.
To help investors meet their financial goals, many investment providers have developed programs designed to help investors build and maintain diversified investment portfolios – at no additional cost. Combining educational tools, advice, market insight and investment products, these programs help investors develop a personal investment strategy, whether they are new to investing, seeking guidance but still want control over their investment mix, need help positioning their portfolios with a long-term perspective, or need help understanding how the markets work.