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Building An Investment Portfolio

July 02, 2019 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Building An Investment Portfolio

Millennials are changing the world. But when it comes to building an investment portfolio, they seem to be somewhat less innovative. A July 2018 Bankrate survey finds that 30 percent of Millennials favor cash for long-term investing, which trumps stocks, real estate, precious metals, bonds, and even cryptocurrencies. Somehow this feels out of synch with how Millennials are known to be super-progressive in tech, food, business, arts and culture. What gives?

When you think about it, it’s understandable. Millennials came of age during the Great Recession and many are completely saddled with school loan debt. When it comes to money, they may feel that protecting what they have is more important than striving for growth.

When you’re young, though, conservative investing may not be the right solution for you. Of all generations, Millennials may understand best that this is the time to be bold, adventurous, and not be afraid to take risks. So how do we apply that attitude to building an investment portfolio? Let’s break it down!

Thinking About Short-Term and Long-Term Goals

Your relationship with money and investing may change as you get older and your circumstances evolve. As this happens, it’s best to keep goals in mind and figure out ahead of time how to meet them. Long- and short-term goals depend on where you are in life.

If you’re still young, you’re in luck. Time is on your side, and when building an investment portfolio, you have that time to make mistakes (and correct them).

You can also potentially afford to take more risks, because you’ll have more time to work on reversing losses, or at least shrugging them off and moving on.

If you’re older and you’re closer to retirement age, you can reconfigure your investments so that your risks are lowered and your investments become more conservative, more predictable, and less prone to large drops in value. If the market takes a downturn, for instance, the road may get a little rocky but you may not feel too much bumping and veering.

As you go through life, consider creating short and long-term goal timelines. If you keep them flexible, you can always change them as needed. But of course, you’d want to regularly check on them, and the big picture they’re helping you create.

Here are a few examples of short-term and long-term goals when building an investment portfolio:

Short Term: Starting an Emergency Fund

Before you do any serious investing, making sure you have enough money stashed away for emergencies is a good idea. Loss of income, unplanned moves, health situations, auto repairs, and all of those others surprises can tap you on the shoulder at the worst possible time—and that’s where your emergency fund comes in.

For short-term expenses, it may make sense to keep your emergency money liquid. Liquidity helps ensure that you can get at your money if and when you need it. Try not to take too many risks with emergency money, because you may not have time to recover if the market experiences a severe downturn.

Nail down this short-term goal first, before you start any investing action.

Long Term: Starting a Retirement Fund

Think about what age you would want to retire, and how much money you think you would need to live on year to year. You can use our retirement calculator to get a better idea.

One of the most frequently recommended strategies for long-term retirement savings is opening a 401(k), an IRA, or both. The benefit of this type of investment account is that they have tax advantages.

One of the benefits of 401(k)s and IRAs is that they help you build an investment portfolio over the course of decades: the long term.

Understanding Your Ultimate Investment Goals

Before you start pondering what you want to invest in, think this through first: Why am I investing? In the end, most of what matters is achieving your financial goals. What are you saving for? What will you need money for in the near and distant future? Start there, but don’t move forward until you have solid answers because it will help you determine how to invest.

Matching your goals with your investment strategy is important if you want to give yourself a shot at the outcome you want.

Prioritizing Diversification No Matter What Investment Strategy You Choose

Diversification means keeping your money in more than one place: think stocks, bonds, and real estate. And once you diversify into those asset classes, you’ll need to drill down and diversify again, within each sector.

Why Diversification Is Important to Your Investment Goals: it can help protect you from vulnerability. The two types of risk that can make you vulnerable are systematic risk and unsystematic risk.

Systematic Risk: Big things happen, like economic uncertainty and war. These incidents will affect almost all businesses, industries, and economies. There’s not many places to hide during these events, so they’ll likely affect your investments too.

One smart way to fight this: diversify. Spread out. High-quality bonds, like U.S. Treasuries, tend to do well in these environments and have offset some of the negative performance that stocks usually suffer during these times.

Unsystematic Risk: Smaller things happen. This risk is more micro than macro; they may occur in a specific company or industry. For instance, a scandal could rock a business, or a tech disruption could make a certain business suddenly obsolete. As a result, stock value could fall, along with the strength of your investment portfolio. The best way to fight this: diversify. Spread out. If you only invest in three companies and one goes under, that’s a big risk. If you invest in 1,000 companies and one goes under, not so much.

Owning a lot of different assets that act differently in various environments can help smooth your investment journey, reduce your risk, and hopefully allow you to stick with your strategy and reach your goals.

How Much Risk Can You Handle?

When it comes to braving risk, everyone is different. And in life there are no guarantees. So where does that leave you? Take your risk temperature and see which type of investing you can live (and grow) with. Below are two general strategies that many investors follow.

Aggressive Investing. This is for the investor who wants to take risks to grow their money as much as possible. The idea here is to “go for it.” Find investments that feel like they have a lot of potential to generate large gains. High risk sometimes means big losses (but not always).

Your stock picks can ride the rollercoaster, and if you opt for an aggressive investing strategy when you’re young and just starting out, you can watch them take the ride without you doing much hand-wringing.

If it doesn’t work out, you can own the loss and move on. Downturns happen. So do bull markets. And when you’re young, you can likely afford to take risks.

Conservative Investing. This is for the investor who is worried about losing a lot of their money. It may be better suited for older investors, because the closer you get to your ultimate goal, the less room you are going to have for big drawdowns in your portfolio should the market sell-off.

As you inch closer to your finish line, you can prioritize lower-risk investments. Research investments with more stable and conservative returns. Lower-risk investments can include fixed-income (bonds) and money-market funds These investments may not have the same return-generating potential as high-risk stocks, but often the most important goal is to not lose money.

Paying Off Debt

Student loans and credit card debt are surely going to stand in the way of your pumping money into your investment portfolio. Do what you can to pay off most or all of your debt, especially high-interest debt.

Get an aggressive repayment plan going. Also, remember it can be smart to pay yourself first (by that, we mean to keep a steady flow of cash flowing into your short and long-term investments before you pay anything else).

Don’t Go it Alone

These are big, often-confusing decisions to make. Sometimes you may need another voice to help you understand what you don’t know. Make a no-obligation appointment with a SoFi financial planner, who can help you hash this out before you make any moves that you are unsure about. Here’s your chance to explore investment strategies that match your goals, and your plan for successfully reaching them.

A SoFi Advisor can also help you get in touch with how much risk you can tolerate. We’ll work out the investment mix that will get you closer to your financial goals, and diversifying among thousands of investments to help keep risks at bay.

Once you’re ready to go forward, SoFi Invest can get you started on a workable, long-term investment portfolio plan. You’ll choose from multiple options that suit your goals.

As a SoFi Member, you’ll have access to over 200 free and exclusive events, and benefit from professional and salary advice.

All it takes is a first step: get started with SoFi Invest.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.


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