How to Build an Investment Portfolio

The idea of an investment policy is to delineate or make available a foundation for an asset allocation mix that is appropriate to the goals of an investor as well as limitations, and risk tolerance. An investment policy creates goals along with the method that is going to be used in order to acquire them. The advantage of a written investment policy statement is to make the most of the investor's well being and net worth while taking into consideration the financial goals and any detailed limitations that are imposed by the investor. An investment policy needs to be created and based upon the exact and particular situation and distinctiveness of every investor. These different situations would include:
  • The age of the individual
  • The risk tolerance of the investment
  • The funds that are presently available and that can be invested
  • The present income of the individual
  • The future need for investment capital and income
  • The quantity that is necessary to be put away on a constant basis

The investment policy also needs to take into account inflation, economic growth, and the investment time horizon the investor has. In addition, an investment policy must also take into consideration the investor's expenditure or preferred expenditure profile such as:

  • Initial investments or wealth
  • Periodic income
  • Cyclic savings
  • Real return brought about on the portfolio
  • Consumption preferences
  • Expenditure for the capacity to use in the future

Usual investment objectives that must be well thought-out and planned into an investor's investment policy and asset allocation resolution will need to include: the preservation of funds, requirement for present income, growth of capital, minimization of income taxes, and the liquidity of investment.

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