Are you new to learning about the investment portfolio types available?
Curious what each investment portfolio type is and how it works?
Wondering which type of investment portfolio is best for you?
In this article, I’ll answer the following questions:
- What is an investment portfolio?
- How do I assess my risk tolerance?
- What are the different types of investment portfolios?
- Which investment portfolio type is best for me?
Quick Links to Information in this Post
What is an Investment Portfolio?
Your investment portfolio is made up of the total assets you invest in, such as stocks, bonds, or ETFs, or how you split your investments.
A properly mixed portfolio maximizes earnings while offsetting the losses.
Diversifying your risk means investing in a variety of assets, such as stocks, bonds, ETFs, REITs, and other alternative investments so that you don’t have all of your eggs in one basket.
If you’re like me, you wonder which portfolio is right for you. While investing is a personal decision, the right portfolio depends on your risk tolerance, or how well you can handle the market’s changes.
Assess your Risk Tolerance
How well can you handle it if your investments will flop? That’s your risk tolerance.
If your stomach flips at the thought of the market dropping, you don’t have a high risk tolerance. But, if the thrill of the ‘roller coaster belly’ gets you excited, you have a high risk tolerance.
I will say, since you’re starting ‘later’ in life than young adults, you may have a lower risk tolerance. You’ll need your money within a shorter timeframe, whether you’ll retire at the typical 59 ½ years old or later – you don’t have 30 or 40 years to ride out the storm.
The Types of Investment Portfolios
The most common types of investment portfolios include:
Aggressive
What is your stance on retirement? Will you retire in a few years or do you see yourself working until your 65 or older?
If you’re retiring in a few years, avoid this portfolio. But, if you plan to work for the next 15 years, you have time to ride out the storms and can try an aggressive portfolio or a version of it.
Aggressive in this term means investing mostly in stocks, a few bonds, and a slight amount of alternative investments or even cash.
Break up your stock investments into large-cap (big companies), mid-cap, and small-cap (small companies) stocks.
Conservative
If you’re nearing retirement or want to get out early, you need to be more conservative. While you’ll still invest in stocks, you’ll focus on large-cap stocks (larger, stable companies) while investing around 25% of your portfolio in bonds (fixed income).
Retiring soon means you don’t have time to ride out a potential market downturn or you may be working longer than you like.
Income
If you feel set for retirement, you don’t need to invest to get major wins or stay conservative to avoid a major loss.
The income portfolio offers a middle road. Investing half of your portfolio in stocks with an emphasis on dividend-paying stocks and the other half divided between bonds and alternative investments, you’ll continue the income growth pattern while not risking your current retirement savings.
Sit down and get honest with yourself. How well can you handle the market’s ups and downs? What would happen to your retirement balance if the market fell drastically overnight?
While you should diversify your portfolio to offset this risk, investors choosing an aggressive or even income portfolio are at higher risk of ‘losing everything’ while a conservative portfolio may come out with her head still above water.
Make Retirement Income by Blogging about What You Love
If you need to rely on a job, either part-time or full, when you retire, consider starting a blog.
Blogging has changed my life for the better both financially and personally. I’m able to blog about subjects I love, help others, and earn enough money to change our family’s financial trajectory.
Read more about this possibility in my article, How to Start a Blog for Retirement Income.
You might also be interested in these free resources to help you start a blog:
Resources to Learn More about Investments:
Investing All-in-One For Dummies (For Dummies (Business & Personal Finance))
Which Investment Portfolio Type is Best for You?
Determining which type of investment portfolio type is right for you is best decided by you and a professional financial advisor.
I plan to be more conservative with my investment portfolio, but you should look at your own situation and decide what works best for you.
You Might Also Like:
- How to Save for Retirement when You’re Behind
- 10 Fun Ideas for Retirement Income
- Setting Goals for Retirement
- 10 Habits Hurting Your Ability to Retire
- How to Live Intentionally so You Can Retire on Time (or Sooner)
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