Building an Effective Portfolio
Just as when starting any important or complicated project, building a portfolio successfully requires starting out with a goal and a plan for getting there. Whether your goal is retirement, the dream house, or your child's education. Whatever the goal, you should spend plenty of time thinking about what suits your goal and risk tolerance.
Your goals tell you how much time you have and how much risk you can afford to take. The more time you have to reach your goal, the more you can focus on asset growth, and take more risk. If you don't have a long time frame, you should concentrate on preserving capital. You're less able to afford a loss or a large set back.
Your specific portfolio make up or allocation is determined by your appetite for stocks and bonds and in what proportion. For instance, one time honored rule is to subtract your age from 100, and allocate that result as a per cent to stocks or other growth investments. This may be too conservative for some and too aggressive for others.
The important thing is to decide with a goal and a plan in mind.
At the risk of sounding a little trite; your goal is your destination, your portfolio is your car, and your plan is your GPS navigation system. Your financial is a very important trip, you want to keep wrong turns to a minimum.