Steps of Building an Investment Portfolio
There exists a process of building an investment portfolio. The following steps show how an investment portfolio be built.
1. Initial Preparation: Find out your present financial condition. Here, you have to list down your assets (stocks, mutual funds, cash, property, bonds, etc.) and your liabilities (debts, credit card dues, education loans debt, home loans debt, etc.). This will form a balance sheet that will give a better picture of your financial status and will help in deciding your financials for your future.
2. Credit Card Debts: As early as possible, the credit card debts should be paid off. These steps would ensure you are clear from any debt related to credit cards,
- List out your debts and rank them based on their interest rates in high to low sequence.
- Estimate the funds required from your monthly income to pay off your debts.
- Give the highest priority to the card having the highest interest rate pay off the debt and pay the minimum balance of all other credit card debts.
- Continue repaying all the debts from your account.
The elimination of debt from your account might take a few months or even years. Try to avoid additional charges and make different attempts to earn extra income and pay off your debts as soon as possible.
3. Purchase a House (An Asset): In this step, save your earnings for purchasing a house via a down payment. The main motive is to convert your rent liability into an asset by being the owner of a house. As per the Income Tax Act, of 1961, the principal amount and interest amount are both exempted from tax rules.
4. Create an Emergency Fund: A minimum of 6 months’ living expenses must be created to cover any unavoidable circumstances such as unemployment, sudden home renovations, medical emergencies, etc. Some of the investment options to create emergency funds are overnight funds, liquid mutual funds, savings accounts, money market instruments, etc. The prime goal of an emergency fund is safety and liquidity rather than returns.
5. Hunt for Other Investment Options: After these initial 4 steps, look for investment options like bonds, stocks, ETFs, mutual funds, CDs, etc. You are allowed to hire a financial advisor who is an expert in building a portfolio that would boost your investment journey.
6. Invest in Yourself: To stand out in the crowd, one has to invest in themselves by undertaking valuable educational courses. Either by improving professional skills or starting your own business, you need to have the basic idea and process to fulfill these objectives. This will help you to shine among other employees and increase your earning capacity and then you can elevate your financial plans.
7. Save for Education: It is the dream of every parent to provide the best possible life for their children. Thus, educating them in the best possible way is a solution and as with time, the expenses in the education sector are increasing drastically, so it is necessary to plan for the financials or build the educational corpus beforehand.
8. Stay on Course: By following the above steps, you are in a better position financially. The road to success is by making informed decisions and abiding by your created plan. Wealth creation relies on continuous and regular effort that counts.