Building a good investment portfolio

Our Take Charge of Your Money feature today helps a young investor to build a good portfolio. His question was:

I want to begin investing for my future, and wonder if there is a recommended portfolio? How much should I set aside for short-term needs, medium-term requirements and long-term goals? I just turned 25, am single and can set aside between P10,000 to P20,000 monthly. - Paolo C.

Paolo must be earning well. But that’s not what floored me. It’s the fact that he is willing to set aside P10,000 to P20,000 regularly.

One of the most important lessons I learned during a mentoring session with Augustus “Joe” Ferreria, the financial planner working with 30-something couple Bianca and Diego is the importance of regularity.

One night in the couple’s dining room, we were huddled over the makings of their spending program displayed on the screen of Joe’s laptop. Joe was getting them to mentally and wholeheartedly commit to themselves to save an amount every month that does not set their teeth on edge. He told them to write a post-dated check for themselves for 12 months and offered to deposit it for them on a specific date in their newly minted checking account in one of the top five universal banks that he helped them open. The commitment was not to let a single check bounce.

“But, Joe, we have more than P100,000 coming in from the sale of one of our properties. If I deposit that amount this month, we won’t have a problem anymore with our savings program for the whole year,” Bianca says.

To their surprise, Joe shakes his head.

“What we are trying to do here is develop a savings habit. I would be much happier with your monthly savings than a one-time deposit,” Joe says.

A good savings habit is also the best foundation for a good investment attitude. With a 6-month buffer fund in your bank account and the regularity of more savings, you’re all set in building a good investment portfolio.

Now, how to get down to the brass tacks.

All experts say an investment portfolio design is as personal as a toothbrush – you can’t use somebody else’s but there are general guidelines on how it should look like. Generally, an ideal portfolio has investments that react differently to developments in the economy, protecting you from sudden shocks and ensuring a good inflow for the long term.

We thus recommend that you begin by scheduling a financial check-up to assess your goals as well as determine your risk appetite.  The session will help you identify your goals (short term, medium term, and long term), how willing you are to take on risks, your time horizon, and more. Only after assessing all these can you start on your investment portfolio.  Some banks offer financial check-ups for free.

Once done, you must also do the following steps, says Citibank’s financial planning experts:

1. Identify clearly your financial goals.
2. Find out how much money you need to finance your goals. 
3. Calculate how much you need to save and invest each month to meet your goals. 
4. Save for an emergency fund. 
5. Ask yourself how willing you are to take on risks. 
6. Practice “asset allocation.” 
7. Review your portfolio over time and change tactics if necessary.

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When talking about personal finance, most people want to be told what to do, down to the last detail. Don’t be like most people. Read as much as you can to educate yourself, talk to a professional financial planner, and make your own decisions. Good luck :-) .

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