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Packing Up Your Portfolio

By Marie Havenga

Portfolio. It’s a word that seems to keep popping up again and again when it comes to investing. So what exactly is a portfolio?

Well, let’s start by thinking of your portfolio sort of like a backpack you haul to school each day. Instead of packing it with books and papers (and that awful English assignment due next Monday), we're going to pack it for the long-term — with a savings account, a variety of mutual funds, and some money strategies that could ultimately make you a millionaire. Does that thought lighten the 30 pounds resting on your shoulders?

Go for the Gold

Like a backpack, the ultimate goal in putting together a financial portfolio is balance. Truth is, you don't want to tip too far in any direction. Your portfolio needs to be as individual as you are — right for your age, your feelings about risk, and your financial goals. A good place to learn more about how your personal preferences could (and should) affect your portfolio is www.RiskMetrics.com.

If you're looking for advice on what to put into your portfolio, your backpack might speak up and say: "Hey, dude! Diversify! Spread out your investment risk. I'm expandable, you know. And I'm better that way."

Diversification Made Easy

The first step is to set aside a chunk o’ change each week in a savings account — always and forever. The more you earn, the more you should put away. The next step is to research mutual funds and find several that match your goals and risk tolerance.

With mutual funds, you'll own hundreds of stocks versus investing in just one or two companies. This gives you instant diversification and automatically lessens your portfolio's risk.

If your backpack had the choice, it might advise you to pick several mutual funds that vary in focus and approach. Two or three wise mutual fund selections can pack your portfolio with all you need, without the headache and bother of tracking individual stocks.

                * First, think about investing in an index-guided fund. These funds are designed to match the returns on indexes like the Dow, the NASDAQ, and the Standard & Poor 500. Historically more stable, they outrank other mutual funds up to 85% of the time.

                * Next, add a growth fund. These funds invest in companies that are rapidly expanding, reinvesting profits, and building value for shareholders.

                * Then, if you are comfortable with risk, look for an aggressive growth fund that invests in companies with the highest growth rates.

Not all mutual funds invest in stocks. Some invest in bonds and money markets. Investors who want to build balanced portfolios usually consider these funds as well.

Any More Words of Wisdom?

“Yeah, dude,” your backpack pipes up. “Remember the stock market is not a slot machine. Don't expect to plunk your money in and have me spill out $100 bills the same day. Be patient, my toting friend. Give me time to grow and expand. Pack me for the long-term. I won't disappoint you.”