Investment Portfolio: What It Is And How To Build A Good One

Diversify your investment portfolio—it’s almost like an unwritten rule when it comes to investing. For beginners, investing in one fund is already complicated and investing in other assets may seem like overkill. But, this is crucial so you can grow your money and have a successful investment.

The concept of diversification is to not put all your eggs in one basket. It's to reduce the risk of investing, especially in high-risk, high return investments like cryptocurrencies, commodities, stocks, among other financial products. So when one investment fails, you don’t lose all your money or encounter personal bankruptcy.

Before getting started with diversifying your investment opportunities, it’s important to build a well-managed portfolio.

Here’s a beginner’s guide to an investment portfolio in New Zealand.

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Table of contents

• What is an investment portfolio?
• What should you invest in your portfolio?
• Stocks
• Bonds
• Mutual funds
• ETFs
• What are the different types of investment portfolios?
• Income portfolio
• Speculative portfolio
• Value portfolio
• How to build a balanced investment portfolio 
• Have a personal goal of why you invest
• Choose the financial products to invest in
• Determine the best portfolio allocation for you
• Pick: DIY route or managed by advisors
• Diversify and rebalance as needed

What is an investment portfolio?

An investment portfolio is a list of all your investments like stocks, bonds, commodities, cash, real estate properties, funds, exchange-traded funds, securities, and other private investments. In a nutshell, it’s a collection of all your assets all under one space.

Rather than a physical document or a separate digital space, an investment portfolio is more like a concept that contains all your assets all in one ‘roof.’ Ideally, this is where you can track the growth, potential, investment opportunities and returns of your invested assets. 

The ultimate goal of every investment portfolio is diversifying it. This means investing in different products at the same time—each one with varying risks, return rate, ROI, growth potential, volatility, terms and condition, and other similar factors. 

While diversifying your investment portfolio doesn’t eliminate the risks, it helps minimise them and guarantee ROIs regardless of how each investment performs.

What should you invest in your portfolio?

A balanced investment portfolio consists of a variety of different financial products. While most portfolio only consists of stocks and bonds, there are other valuable and profitable investment opportunities in New Zealand such as:

Stocks

Stocks are the most common investments in a portfolio. Simply put, it’s owning a part of the company listed on the public stock exchange. The more stock you own, the larger part of the company you own and the higher the portion of the profits you get.

Bonds

Bonds are another common investment opportunity for New Zealanders, wherein an investor lends their money to the government, an agency, or a company as an investment. After a fixed date, an investor is paid back on top of the interest rate.

Mutual funds

Mutual funds invest your money in a collection of securities, which is usually managed by a fund manager. Instead of investing in individual stocks and bonds, this allows investors to diversify their investment portfolios all at once.

Exchange-traded funds (ETFs)

Essentially, ETFs are mutual funds that trade like stocks. They’re more passively managed, making them a cost-saving investment as you don’t have to pay for management fees. Plus, it diversifies your investment portfolio quickly and easily.

Other alternative investments

There are plenty of different investment products available in New Zealand, which can grow your portfolio and diversify it at the same time. This may include:

• Real estate investments including trusts
• Cash equivalent or savings accounts
• Commodities like gold and oil
• Cryptocurrencies

Read: Guide To Cryptocurrency In NZ: Invest, Buy and Trade

What are the different types of investment portfolios?

Building your investment portfolio also means choosing the path for your assets. Do note that you can mix and match different types of investment portfolios, and even have multiple portfolios. Picking the best portfolio type depends on the strategies you choose.

Do note that these are only some of the most common types of investment portfolios. It's best to consult an investment professional to know more about the type of portfolio that fits your personal and financial circumstances.

Income portfolio

An income portfolio is geared towards keeping a steady flow of income coming from your investments. Investors mainly earn from dividend-paying stocks, ensuring positive returns regardless of whether they earn high or low.

Speculative portfolio

A speculative portfolio is designed for investors that can take the risks. This usually invests money in high-risk, high return investments, including initial public offering, angel investing, and venture capital on tech and healthcare companies.

Value portfolio

A value portfolio invests in cheap assets in terms of valuation. Usually only used during bankruptcy, recession, and economic collapse, investors purchase companies below their supposed market value to sell them at a higher value later on.

Read: How Does Investing Work In New Zealand?

How to build a balanced investment portfolio: 

While diversifying your investment portfolio is important, it's also worth building a balanced portfolio that aligns with your goals and objectives as well as your appetite for risks, investment allocation, among other factors. To build a well-balanced portfolio, you need to:

1. Have a personal goal of why you invest

Investing is often a long-term commitment, so you have to be firm on your decision to invest. Ask yourself why you’re investing in the first place, and set your personal goals and objectives. This way, you can set clearer strategies and funds you want to invest in.

2. Choose the financial products to invest in

Once you set your personal goals, it’s time to choose financial products you think you can manage and grow later on. Of course, stocks, bonds, mutual funds, and ETFs are recommended but not for everyone. To pick the right product to invest in, you have to set your:

• Risk tolerance
• Longevity of investment
• Expected ROIs
• Goal date
• And similar indicators

Determining these factors can help you find the right financial product that matches your lifestyle. While stocks and bonds can often work as a default, it’s best to consult a financial advisor to ensure you get the best choices.

3. Determine the best portfolio allocation for you

After knowing which funds to invest in, you have to decide on how you want to allocate them. This helps you manage the risks and set expectations for your returns. Take a look at the most common allocations.

• Aggressive - 15% bonds, 85% stocks
• Moderate - 40% bonds, 60% stocks
• Conservative - 70% bonds, 30% stocks

As with any investment, the higher the risk, usually the higher the returns. However, you can always mix and match to better suit your needs. As always, talk to a professional to know what works best for you.

4. Pick: DIY route or managed by advisors

There are two ways to manage your investment portfolio: DIY or managed by a professional. For beginners, it’s recommended to have your portfolio managed by professionals. This minimises the risk and chances of mistakes that can affect your investments negatively.

While it’s still recommended for experienced investors to have their portfolio managed by a professional, they can take the DIY route to limit management fees, administrative fees, and other similar costs. This may also mean higher returns for the investor.

5. Diversify and rebalance as needed

Once you’ve determined all these factors, it’s time to diversify your portfolio! Remember that these factors can always change depending on your current circumstances. If your current portfolio doesn’t align with your needs, rebalance your portfolio as needed.

Pro-tip: Always use the right investment tools

Whatever investment fund or route you take, always use the right investment tools. This makes managing your portfolio a lot easier and more optimised to your needs. Luckily, you can find the best investment tools for you, in just a few simple steps.

Glimp compares nine NZ share savings apps that offer low brokerage fees and high-interest rates to help you find the best investment for your needs.

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