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Building an Investment Portfolio

Updated on August 8, 2016

It is natural to go 'cherry-picking' your investment stocks. However, if you aim at getting yourself a balanced portfolio instead of chasing individual stock pricing, you will be in better long-term position. Similarly, by evaluating your term insurance against your longer-term financial requirements will ensure that you are in a proactive position to deal with fluctuations and volatility in markets.

5 Tips for Safe Investing

1. Start early: This is the simplest of all investment rules. The longer you keep your money invested, the better it's potential to grow and create wealth for you. Market fluctuations make you feel euphoric when stocks rise but can also give you some moments of terror when prices slide downwards. Those who take a more long-term view of things and have a long-term investing strategy in place are better positioned to ride out fluctuations and usually get the best returns with time. The trouble with postponing your investments in life is the resultant confusion between needs and wants. Expenses can continually eat into your savings and

2. Know your requirements: Forecasting is the key to freedom from future worries. This requires a clear-headed estimation of when and how much money you will require. With the right kind of long-term perspective, you can ride out the short-term volatility usually associated with small-cap stocks. The key to categorizing your money requirements according to their fluctuations and adjusting your estimates for inflation. While a term insurance plan might cover your child's education needs, anyone who is dependent on a fixed amount of income, such as retired persons cannot depend on such an option. The other factor that retired persons and those with fixed incomes must take into consideration in their planning is inflation.

3. Understand what you are investing in: The difference between investing and gambling is the amount of ignorance you carry to the table along with your money. While it is okay to rely on wealth managers and investment consultants, there can be no substitute for a good amount of working knowledge of the industry or business you are investing in. While your consultant or investment manager might give you the best of the 'company line' in terms of advice, the final risk is with you, the investor. To know what are the market fluctuations that you need to react to, you need to understand the nature of your investments as well as the business you have invested in.

4. Separate Buckets: To make sure that you can get your hands on your money when you need it, keep your money market account and your short-term bonds handy for conversion into liquid funds in case of a market crash.

5. Diversify your portfolio: Just like separate buckets, here we advocate separate baskets for your investment eggs. Spread your money across asset classes with the view of smoothing out your returns. By adding assets like real estate and commodities, you can rest at ease in both bull and bear markets.

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