Putting together an investment portfolio​

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05 Nov 2018 | 3 min. read

How to build and manage an investment portfolio according to your goals, risk appetite and personal circumstances.

Key takeaways

  • In building your portfolio, you need to consider your investment objectives and goals, investment horizon and available funds.
  • You need to know your risk profile, and think about creating a well diversified portfolio.

Start to build your portfolio by asking yourself these 6 questions:

How much time do you have to invest?

The longer your investment horizon, the more time you have to grow your investments through compounding.

Staying invested for longer periods also allows you time to ride out short-term fluctuations in the market.

If you need your money in the near term, you should look for low-risk products that are easy to liquidate (e.g. Singapore Savings Bonds).

How much money do you have to invest?

After accounting for your emergency savings, household expenses, insurance premiums and loan repayments, you will have an idea of how much you have available for investment.

Do not commit to investing more than you can comfortably afford in the long term. Also keep in mind that most investments come with some costs; for example, unit trusts have several fees and charges attached.

How much risk can you take?

Take note of the short-term and long-term needs of your family – if you have more immediate needs, you should be taking on less risky investments.

Also, if your investment suffers a loss, will it impact your other commitments, such as loan repayments? Do not take the risk if you do not have the time to recover from your losses.

Be extra prudent when investing your retirement savings.

You can understand your risk profile better with help from assessment tools such as this risk tolerance questionnaire.

What are your goals?

Work out how much money you need and when you need it, for each of your financial goals. This will help you determine the returns you need to reach your goals.

  • If you are just starting your career, your investment objective would be to grow your capital.
  • If you have already reached your savings goal, your investment objective might then be to secure your capital.
  • If you have retired and need to access your nest egg, you would want to ensure high liquidity, or being able to convert your investment to cash quickly. You may also like to earn an income from your savings.

Tip

Use a retirement calculator to find out how much you need to set aside now for your retirement.

A simple way of focusing your objectives is to decide which category you fall into: growth, income or capital preservation. Here's a sample of what that might look like:


Growth
Enhance your returns
Income
Maximise your income
Security
Preserve capital
Portfolio emphasis Equity oriented Fixed-income oriented Fixed-income oriented
Return High Medium to high Lower
Risk High Medium Lower
Possible investments Stocks, ETFs Dividend-paying stocks, bonds Bonds

See also: Guide to types of investment products

What should you invest in?

Diversify, diversify, diversify:

  • Take note of the different asset classes and major types of products
  • Compare what's available and check how well they meet your needs and personal circumstances
  • Choosing your investment options involves striking a balance between liquidity, safety and returns
  • Consider dollar-cost averaging as a means to accumulate the assets you want

Things to note

Even within asset classes like bonds and equities, the individual securities could be of different quality.

If you have high liquidity needs, you can still invest in higher-risk options, as long as a sufficient portion of your portfolio is liquid and easily converted to cash. Some examples might be high-quality, short-term maturity debt instruments like government securities and Singapore Savings Bonds.

Very importantly:

Tip

Start with the products you already have

If you already have investments, consider how to build a diversified portfolio starting with these. Ask yourself:

  • Will a new product you are considering lead to you being over-exposed to certain investments?
  • Are there transaction costs if you switch products?

Is your portfolio diversified and performing as expected?

Review your portfolio regularly and re-balance. You should take into account your current life stage and financial status.

Regularly reviewing the performance of your investments helps you identify if the investments are on track to achieving your goals. You should do this even if you are a passive investor – investing mainly in unit trusts or funds that track indices.

If you have products that are more volatile, you should monitor those more carefully, in case the market is at a downturn when you need your money – you may then choose to liquidate sooner.

Staying informed on current affairs and market trends can help you make timely decisions too.

Last updated on 15 Nov 2018