<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->

How to Piece Together Your First Portfolio

This article responds to a popular question from a recent Financial Women’s Conference: How should I invest my money? When people find out my profession, they often ask that question, so I wasn’t surprised to see it as a frequently asked question at the conference. Unfortunately, the answer isn’t that easy to provide. 

In his book, Smart Women Finish Rich, author David Bach suggests the following rule of thumb in the overall allocation: “Take your age and subtract it from 110. The number you get is the percentage of your assets that you should put in stocks or stock-based mutual funds. The rest of your assets should go into something less volatile, such as bonds or fixed-rate securities.” I’ve also often seen 100 replace the 110, but you get the gist of where we are going with this. And remember, this is just a rule of thumb. Many other factors need to be considered. (For related reading, see: 4 Easy Steps to Create Your Own Budget.

Building a Portfolio

When developing your own portfolio, there are a number of questions you should ask yourself. Here are a few: 

  • What will I be using the money for (retirement, a large purchase, education)?
  • When will I start to need it (five years from now, 10 years, or 20 years)?
  • How long will I need to use it once I do start to need it?
  • Once my nest egg is built, how much will I need to withdraw from it? In other words, approximately how many “eggs” need to be in the basket?
  • The famous risk question: Am I a nervous person when it comes to market swings, or will I only revisit the allocation on an annual basis? 

Answering these questions is just a starting point. Once you’ve defined the answers, the next layer of confusion is often about what investments to pick. I was curious, so I Googled “number of registered mutual funds in the U.S.” According to statista.com, there were 9,520 funds in 2015. Isn’t that amazing? Even I was shocked at that statistic. So how does an individual narrow that down to just a handful that is right for your portfolio?

I’m sorry to say that I can’t give specific advice about that because there are just too many variables. However, what I would recommend if you want to try to do it on your own would be to start with the known companies out there—companies like Vanguard, Fidelity, Schwab and TD Ameritrade.  They have great learning tools that will help educate you on this journey. One of my favorites is from the TD Ameritrade website because it has videos and some great tools.

Although not a solution for everyone, one idea if you are just getting started is to consider a balanced or allocation mutual fund; this is a mutual fund that has a mix of stocks and bonds in it already, so you don’t have to try to put the mix together. (For related reading, see: Hiring an Advisor? Here's What You Need to Know.