In the last few years, the barriers to entry that have kept many Americans on the outskirts of the investment market, have come tumbling down. The onset of digital trading platforms and mobile investing apps has now made it easier for ordinary people to open and manage an investment portfolio.
The investing landscape has seen some significant changes in recent years, with figures suggesting that more than 60% of young investors, those aged 18 to 34 years old, only first started investing as early as 2020 or later.
In fact, the pandemic helped kick-start a new generation of investors and traders. According to a report by Deloitte, more than 10 million Americans opened a new brokerage account in 2020, leading experts to dub it “the year of the retail investor.”
The explosive growth of digital retail investment and brokerage services has also meant that finding authoritative help can be a challenge in itself. A recent LendingTree (NASDAQ:TREE) survey found that around four in 10 of the Gen Z population use TikTok for investment information. Even more, 35% of 13 to 20-year-olds turn to TikTok for personal finance and investing advice, according to Greenlight, a personal finance app for younger Americans.
1. Have a Plan for Your Money
A good place to start is by planning what you want your money to do, and by this, I mean setting up a financial goal that you can follow.
If you have a short or long-term financial goal on the horizon, you will have a better understanding of how to manage your portfolio, including what type of investments to include, the amount of risk exposure you can undertake, and how much of your returns you can reinvest in your portfolio.
2. Align Your Goals with Your Investment Strategy
Similar to what we’ve just mentioned, having financial goals or investing goals will help to create an investment strategy that can lead you to achieve certain milestones throughout your investment journey.
Look for assets that will help protect your portfolio against inflation and recessionary concerns. These assets are often hard to come across, especially if you are new to the game. Some retirement accounts, real estate, and Treasury inflation-protected securities (TIPS) can help level the playing field and counter stubbornly-high inflation.
3. Increase Portfolio Diversification and Risk Tolerance
In case you don’t know it yet, putting all your cash into one asset, company, or stock can exponentially increase your risk tolerance, especially at a time when market volatility is through the roof. Financial instruments are subject to different risk factors, and the more you plump up your portfolio with investments that share the same risk factors, the more you expose yourself to volatility.
Market Risk
Also known as systemic risk, this refers to the overall movements and changes of the stock market and how its trajectory will impact your returns.
Geographical Risk
There are a lot of geographical risks currently floating in the market, as changes in political and social regimes and policies impact overall investment performance.
Interest-Rate Risk
Fixed-income assets, such as Treasury bills and bonds, are affected by fluctuations in interest rates.
Idiosyncratic Risk
Changes in the fundamental and top-line performance of a company can alter the direction of its shares.
4. Have a Modest Investment Strategy at First
While higher-risk investments do tend to have better returns (although not always the case), it’s likely best to have a modest investment strategy at first before you look to add alternative financial instruments.
Your strategy should include your financial goal and how you plan on achieving this goal through your investment decisions. If you have a decent amount of money to work with and are not scared to take the risk, consider where you can park your cask so that it delivers the best possible return.
5. Have Patience
Building a Warren-Buffett-sized portfolio won’t happen overnight or within a week. Building a well-performing investment portfolio while managing it yourself means that you need to consider a few financial factors and calculate your risk. Additionally, you will need to research the different types of instruments you want to invest in and consider the guidance of other experienced investors.
Final Considerations
The more comfortable you become with your portfolio and how to manage the different financial instruments, the easier it will be to include new assets that can help diversify your portfolio while also helping to give you just the right amount of risk exposure.
Always consider how an investment instrument will benefit you and your portfolio, but more importantly, have a strategy that works with what you want to achieve in terms of your financial goals.
