The best way to balance your portfolio? There isn't one. Wasn't that easy?

    In the same manner, there isn't one diet that fits everyone. Depending on your body fat makeup and what you're trying to accomplish (increasing endurance, building muscle, losing weight), the proportions of protein, fat, and carbohydrates you should consume can vary widely.

    Key Takeaways

    • There isn't one single portfolio balance that suits every investor. The best way to balance your portfolio must take into account your risk tolerance, goals, and evolving investment interests over time.
    • A good way to start and minimize risk is by creating a diversified and balanced portfolio with stocks, bonds, and cash that aligns with your short-term versus long-term needs.
    • From there, you can broaden your portfolio to include other assets like real estate or high-risk investments to get higher returns.

    A Balancing Act

    Thus it goes for balancing your  portfolio . A former client of mine once stated that her overriding  investment objective  was to "maximize my  return while minimizing my  risk ." The holy grail of investing. She could have said "I want to make good investments" and it would have been just as helpful. As long as humans continue to vary in age, income,  net worth , desire to build wealth, propensity to spend, aversion to risk, number of children, hometown with its concomitant  cost of living , and a million other variables, there'll never be a blanket optimal portfolio balance for everyone.

    That being said, there are trends and generalities germane to people in particular life situations which can align risk tolerances. Seniors who invest like 20-somethings ought to, and parents who invest as singles should, are everywhere, and they're cheating themselves out of untold returns every year.

    Fortune Favors the Bold

    If you recently graduated college—and are able to do so without incurring significant debt – congratulations. The prudence that got you this far should propel you even further. (If you did incur debt, then depending on the  interest rate  you're being charged, your priority should be to pay it off as quickly as possible, regardless of any short-term pain.)

    But if you're ever going to invest aggressively, this is the time to do it. Yes, inclusive  index funds  are the ultimate safe stock investment, and attractive to someone who fears losing everything. The  S&P 500 's returns over the last 10 years are a testament to its "safety" and show the value that can be accumulated over time. Learning about dollar cost averaging and beginning the habit of automated investing is also important for new graduates. Still, why not incorporate a little more unpredictability into your investments, in the hopes of building your portfolio faster?

    So you put it all in OfficeMax stock last January and lost three-quarters of it by the end of the year. So what? How much were you planning on amassing at this age anyway, and what better time to dust yourself off and start again than now? It's hard to overemphasize how important it is to have time on your side. As a general rule of life, you're going to make mistakes, and serendipity is going to smile on you once in a while. Better to get the mistakes out of the way early if need be, and give yourself a potential cushion. "Fortune favors the bold" isn't just an empty saying, it's got legitimate meaning.

    Risk Tolerance Decreases

    For most investors, their tolerance for risk decreases as they enter their 30s and 40s. These investors are less willing to bet substantial portions of their worth on single investments. Rather, they are looking to build out a liquid fund for emergencies and luxury purchases while also continuing to make automated investments for the long term.

    Seasoned investors may also be more interested in many of the market’s targeted customized investments like target-date retirement funds and target-risk funds. These investors may also seek to take bets on value versus growth with the former offering income while the latter rounding out some of their higher-risk allocations.

    Fortune Doesn’t Favor the Reckless

    Fortune doesn't favor the reckless, however, and at some point in your life, you will want to seriously begin saving for retirement. In the case of retirement, it can be best to start with the three traditional classes of  securities —in decreasing order of risk (and of potential return), that's stocks, bonds, and cash. (If you're thinking about investing in esoteric investments like  credit default swaps  and  rainbow options , you're welcome to sit in on the advanced class.) The traditional rule of thumb, and it's an overly simple and outdated one, is that your age in years should equal the percentage of your portfolio invested in bonds and cash combined.

    It's unlikely that there is someone on the planet who celebrates his birthday every year by going to his investment advisor and saying, "Please move 1% of my portfolio from stocks to bonds and cash." Besides,  life expectancy  has increased since that axiom first got popular, and now the received wisdom is to add 15 to your age before allocating the appropriate portion of your portfolio to stocks and bonds.

    That the rule has changed over the years should give you an idea of its value. The logic goes that the more life you have ahead of you, the more of your money should be held in stocks (with their greater potential for growth than bonds and cash have.) What this neglects to mention is that the more wealth you have, irrespective of age, the more conservative you can afford to be. The inevitable corollary might be less obvious, and more dissonant to cautious ears, but it goes like this: the less wealth you have, the more aggressive you need to be.

    The Bottom Line

    Investing isn't a hard science like chemistry, where the same experiment under the same conditions leads to the same result every time. However, there are some basic axioms, mainly centered around age with risk, for which investors can rely. Understanding and creating a portfolio allocation using stocks, bonds, and cash that aligns with your risk tolerances and short-term versus long-term needs is important, to begin with.

    From there, you can potentially broaden your investments to other alternatives like real estate or take some concentrated high-risk investments in high-growth stocks to reach for some higher returns. Overall, the best portfolio balance will be one that fits your risk tolerance, goals, and evolving investment interests over time.

    What should an ideal portfolio look like?
    An ideal portfolio should contain a growth component, particularly in your younger years. Later in life, the focus shifts from growth to income. No matter your age, it's essential to diversify and rebalance your portfolio as your goals, risk tolerance, and time horizon change. more
    How to build an ideal crypto portfolio?
    The best way to start a crypto portfolio is to give at least a 60% share to Bitcoin followed by a share in Ethereum, the #2 crypto. Mathematically, the best portfolio for risk adjusted returns in future is estimated at 75% Bitcoin, 25% Ethereum. more
    What is the ideal portfolio?
    An ideal portfolio contains a varied assortment of investments. This can range from government bonds to small-cap stocks to forex currency. But it's important to manage your portfolio well. Otherwise, you could end up with lower returns. more
    What is the ideal portfolio?
    An ideal portfolio contains a varied assortment of investments. This can range from government bonds to small-cap stocks to forex currency. But it's important to manage your portfolio well. Otherwise, you could end up with lower returns. more
    What is an ideal portfolio in education?
    A student portfolio is a compilation of academic work and other forms of educational evidence assembled for the purpose of (1) evaluating coursework quality, learning progress, and academic achievement; (2) determining whether students have met learning standards or other academic requirements for courses, grade-level more
    What is an ideal portfolio?
    An ideal portfolio contains a varied assortment of investments. This can range from government bonds to small-cap stocks to forex currency. But it's important to manage your portfolio well. Otherwise, you could end up with lower returns. more
    What is the ideal portfolio mix?
    Income Portfolio: 70% to 100% in bonds. Balanced Portfolio: 40% to 60% in stocks. Growth Portfolio: 70% to 100% in stocks. For long-term retirement investors, a growth portfolio is generally recommended. more
    How to build an ideal crypto portfolio?
    The best way to start a crypto portfolio is to give at least a 60% share to Bitcoin followed by a share in Ethereum, the #2 crypto. Mathematically, the best portfolio for risk adjusted returns in future is estimated at 75% Bitcoin, 25% Ethereum. more
    What is an ideal portfolio?
    An ideal portfolio contains a varied assortment of investments. This can range from government bonds to small-cap stocks to forex currency. But it's important to manage your portfolio well. Otherwise, you could end up with lower returns. more
    What is the ideal portfolio mix?
    Income Portfolio: 70% to 100% in bonds. Balanced Portfolio: 40% to 60% in stocks. Growth Portfolio: 70% to 100% in stocks. For long-term retirement investors, a growth portfolio is generally recommended. more
    How many funds make an ideal portfolio?
    You will not achieve diversification by investing in five Large Cap Funds, which invest in the 100 largest companies. Hold one fund each in Large, Mid and Small Cap category. Within the same theme/market cap, you need not have more than two funds as a thumb rule. You will do extremely well with one fund. more

    Source: www.investopedia.com

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