Every individual investor has goals which he is willing to accomplish by making an investment in stock market. To achieve these gaols and sustain in market on long term basis it is required to construct an optimum portfolio . An investors should ideally first learn about his risk bearing capability and design his portfolio accordingly. For improving returns from market financial advisory services can be referred as well. Investors should aim to maintain a well diversified portfolio as diversification helps to limit the impact of any particular asset class on your overall portfolio. At times some asset class do not perform well and some does, diversification helps to compensate the loss caused by one from the good performance of other. By balanced portfolio it is meant that specific portion of your portfolio allocated to each asset class is according to your desired risk/reward ratio.
Following are some suggestions to build an optimally balanced portfolio :
1) Traders should avoid taking concentrated position i.e high percentage of portfolio should not be devoted to one investment. Ideally total value of your investment portfolio should be divided among different types of asset class.
2) You may opt for investment which can offer greater returns but consider the fact that high returns are associated with high risk. To protect your portfolio from market’s volatility in any particular asset diversify your investment which will help in diversifying the overall risk. Your portfolio may consist of assets which have more or less risk then your risk bearing capability but you should try to maintain average risk of your entire portfolio according to your risk tolerance level. For example you can not face high risk in market then you should look for asset which can offer you steady returns.
3) Proper capital allocation is important. On basic level it is not difficult as your portfolio may consists of stocks, bonds and commodities but you can further sub categorize them on the basis of potential returns they can offer. First learn risk and returns associated with different asset class and then allocate funds to them.
Some common portfolio problems are discussed below :
1) Often investors follow a one sided approach i.e their portfolio consists of stocks belonging to particular sector.
2) Large capital allocation to one investment type is another one core problem.
Building an optimally balanced portfolio is really important to earn expected returns from market and control losses. Investors often do not understand how important it is and tend to loss their hard earned money in market.To maintain an ideal portfolio there are some core basic rules which must be followed. If you are unable to design your portfolio then you may take advise from financial market experts or portfolio managers.