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How To Create A Balanced Investment Portfolio

How To Create A Balanced Investment Portfolio

How do you create a balanced investment portfolio that will deliver the financial results you want and need most?

Balancing your portfolio and proper asset allocation is an incredibly important part of investing and your finances in general. It can make all the difference. 

It is really about diversification. To ensure you are meeting your various financial needs and goals. 

Factors Involved In Balancing Your Investment Portfolio

Most investors are working to achieve multiple goals simultaneously. 

Most commonly this includes:

  1. Generating passive income
  2. Capital preservation
  3. Wealth growth

Some investments are better at delivering on some of these than others. For example, stocks provide zero downside capital preservation. Few stocks may offer dividends. A few options including some real estate investment opportunities may check all the boxes at the same time. 

Diversification in your portfolio can also help spread and lower risk while ensuring more consistent and predictable returns and performance. This makes future financial planning much easier. 

What Should Be In My Investment Portfolio?

Before investing, everyone should have at least 3-6 months of emergency reserves in cash or cash equivalents. Money that you can easily access, without high penalty fees. This can help you get through job losses, missed work, medical emergencies, storms that damage your home, or crazy times like pandemics. 

After this, most individual investors have applied a broadly diversified approach to traditional assets classes. 

These include:

  • Publicly traded stocks (domestic and in emerging markets)
  • Funds and funds of funds
  • Bonds
  • Precious metals

Cryptocurrencies and venture investments trended for a while. Though increasing concerns over these asset classes may be changing that already. 

Make sure you know why you are putting money into these things if you do. For example; bonds may appear to be solid but may end up delivering negative net yields. Public stocks may deliver exciting paper returns in bull runs, but all can be lost overnight when that changes. Precious metals offer no income, and usually very little growth. 

Alternative Investments

‘Alternative investments such as real estate have been taking up a growing share of investment portfolios. Especially among sophisticated investors, and ‘smart money funds. 

Big Wall Street giants, including Goldman, have been putting hundreds of millions, and even billions more into real estate-related investments, such as real estate debt. 

Some of the biggest funds, such as the endowment funds of Yale, Harvard, and Stanford have been dramatically increasing the share of their portfolio in these types of investments. It’s not uncommon to now see 30% to 40% of their capital in these assets. Or even more. That’s on top of the fact that these giants are just real estate companies, which also happen to bring in additional revenue from tuition fees and related donations. 

How you choose to balance your investment portfolio may vary by age, goals, and market conditions, and cycles. 

For example, if you are soon to be, or are already retired then you will probably shift a lot more of your assets into passive income-producing investments. If you are young, you may be more aggressive about growth. If you already have a decent amount of savings and capital, you will begin prioritizing safety, to make sure you don’t lose the gains you’ve made. 

Interestingly, some have found success all in one sector. Specifically, diversifying, with a real estate focus. Such as dividing their portfolio between private lending, income properties, and value add or opportunistic property flips. 

Talk to one of our financial experts today to find out how today’s real estate funds and private lending can help you not only achieve balance but get the results you want from your investment portfolio.