{"id":341,"date":"2018-03-13T03:10:19","date_gmt":"2018-03-13T03:10:19","guid":{"rendered":"https:\/\/nestegginvestments.co.nz\/?p=341"},"modified":"2020-11-17T03:42:20","modified_gmt":"2020-11-17T03:42:20","slug":"designing-the-perfect-investment-portfolio","status":"publish","type":"post","link":"https:\/\/nestegginvestments.co.nz\/index.php\/2018\/03\/13\/designing-the-perfect-investment-portfolio\/","title":{"rendered":"Designing the perfect investment portfolio"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-343 aligncenter\" src=\"https:\/\/nestegginvestments.co.nz\/wp-content\/uploads\/2018\/03\/do-it-yourself-investment-portfolio-580x333-1-300x172.jpg\" alt=\"\" width=\"300\" height=\"172\" srcset=\"https:\/\/nestegginvestments.co.nz\/wp-content\/uploads\/2018\/03\/do-it-yourself-investment-portfolio-580x333-1-300x172.jpg 300w, https:\/\/nestegginvestments.co.nz\/wp-content\/uploads\/2018\/03\/do-it-yourself-investment-portfolio-580x333-1.jpg 580w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/p>\n<p>Many (maybe most) investors are looking for the perfect investment portfolio \u2013 the ideal mix of investment assets that will lead to outsized gains, and low volatility, over an extended timeframe.<\/p>\n<p>There are many, many factors to consider in designing an investment portfolio, and an almost infinite set of criteria that can be applied.\u00a0 A by no means definitive list of options could include: stocks v fixed interest v property v cash, passive v active management, developed v emerging markets, NZ v Australia v international, currency hedged v unhedged, short term bonds v long term bonds v term deposits, commercial v residential property, value v growth, high v low volatility, momentum v contrarian, etc, etc.<\/p>\n<p>Unfortunately, building the perfect portfolio is only possible in retrospect.\u00a0 There simply is no way to definitively know what particular mix of investments will be best going forwards.<\/p>\n<p>That said, I do have some recommendations for designing an investment portfolio:<\/p>\n<ul>\n<li>Define your investment goals. What do your investments need to deliver to meet your goals?\u00a0 Are your investment goals compatible with your risk profile (see next point)?<\/li>\n<li>Set the right risk tolerance. This is the degree to which you can stand ups and downs.\u00a0 Ups are all good, but can you cope with your portfolio losing 30% in one year?\u00a0 This is a financial capability question and an emotional tolerance question.\u00a0 If you can\u2019t cope, either financially or emotionally, design a less risky portfolio (as long as it still meets your investment goals).<\/li>\n<li>Match your asset allocation to your investment goals and risk tolerance. If you really couldn\u2019t cope with a 30% fall in the value of your investments, don\u2019t invest everything into shares or property (as an example). \u00a0A financial adviser can help with this.<\/li>\n<li>Keep things simple. This is easy.\u00a0 If you don\u2019t understand how an investment works, don\u2019t invest in it.<\/li>\n<li>Diversify. Diversification is one of the few \u201cfree lunches\u201d available to investors.\u00a0 A well diversified portfolio (a large spread of investments) can achieve the same expected returns as a less diversified portfolio, but with lower volatility.\u00a0 It\u2019s a theoretical advantage worth having.<\/li>\n<li>Rebalance. Your ideal portfolio may be 50% shares and 50% fixed interest.\u00a0 If your actual mix strays significantly from this (say more than 15-20%), it\u2019s time to rebalance back to your ideal mix by selling some assets and buying others.\u00a0 This is a disciplined way of selling high and buying low and works when markets are rising or falling.<\/li>\n<li>Sick with it, and be patient. Maintain your portfolio mix for years, and maybe even for decades.\u00a0 It\u2019s easy to get excited by the latest fad \u2013 crypto currencies, tech stocks, Auckland real estate, whatever.\u00a0 But don\u2019t get sucked into chasing returns by \u201cskating to where the puck was\u201d.\u00a0 This will usually be counter-productive.<\/li>\n<\/ul>\n<p>It\u2019s highly likely that <em>your<\/em> investment portfolio won\u2019t turn out to be the optimal portfolio \u2013 there will always be portfolios that will do better (higher returns, less volatility) \u2013 but you won\u2019t know which ones until after the fact!\u00a0 However, if you do stick with the above guidelines, you will be giving yourself a very good chance to be successful and to meet your financial goals.<\/p>\n<p>&nbsp;<\/p>\n<p>Dean Edwards<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many (maybe most) investors are looking for the perfect investment portfolio \u2013 the ideal mix of investment assets that will lead to outsized gains, and low volatility, over an extended timeframe. There are many, many factors to consider in designing&hellip; <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-341","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"aioseo_notices":[],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts\/341","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/comments?post=341"}],"version-history":[{"count":2,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts\/341\/revisions"}],"predecessor-version":[{"id":344,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/posts\/341\/revisions\/344"}],"wp:attachment":[{"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/media?parent=341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/categories?post=341"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nestegginvestments.co.nz\/index.php\/wp-json\/wp\/v2\/tags?post=341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}