A 5-step guide to creating your ideal investment portfolio 

Creating the right portfolio is crucial for achieving your financial goals. Whether you’re Warren Buffet or just starting out after getting your first paycheck, understanding how to build and manage your investment portfolio is paramount.

Here’s a simple step-by-step guide you can follow.

1. Understand the key elements of a well-balanced portfolio

A well-balanced portfolio isn’t a one-size-fits-all solution. However, it typically includes a mix of:

•  Equities (stocks): These offer potential for high returns and can be invested directly or through index funds and exchange-traded funds (ETFs).
•  Fixed income securities: Bonds provide stability and regular income.
• Cash or cash equivalents: These offer liquidity and safety.
•  Other assets: Some investors include real estate, commodities, or alternative investments for further diversification.

Diversification within each asset class is crucial. For stocks, consider spreading investments across various sectors and geographies. In the bond market, mix government and corporate bonds for a balance of safety and yield. Cash equivalents can include savings accounts, money market funds, or Treasury bills.

Some investors expand their portfolios further with real estate, commodities, or alternative investments. These can offer additional diversification benefits and potential returns, but often come with their own risks. Remember, the goal is to create a mix that aligns with your financial objectives and risk tolerance.

2. Determine your risk tolerance

Understanding your risk tolerance is essential for building a portfolio you can stick with through market ups and downs. Start by assessing your financial situation. Consider your job security, income consistency, savings, and debt levels. These factors will influence how much risk you can afford to take.

Your investment timeline plays a crucial role in determining appropriate risk levels. Short-term goals may require more conservative investments, while long-term objectives can often withstand higher volatility for potentially greater returns. Be honest about your comfort level with market fluctuations – your emotional tolerance for risk is just as important as your financial capacity.

Many financial institutions offer risk assessment tools to help gauge your risk preference. These can be useful starting points, but remember that risk tolerance can change over time as your life circumstances evolve. Regularly reassessing your risk tolerance ensures your portfolio remains aligned with your current situation and goals.

3. Avoid common portfolio mistakes

One of the most frequent mistakes investors make is neglecting to rebalance their portfolios. As markets move, your asset allocation can drift from its original targets. Set a regular schedule – quarterly or semi-annually – to review and rebalance your portfolio. This disciplined approach helps maintain your intended risk level and can improve long-term returns.

Emotional decision-making during market volatility is another common pitfall. It’s natural to feel anxious during market downturns, but making reactionary decisions often leads to selling low and buying high. Stick to your long-term strategy and avoid making major changes based on short-term market movements.

Don’t underestimate the impact of fees and taxes on your investment returns. High fees can significantly erode your wealth over time. Be aware of the costs associated with your investments and consider their long-term impact. Similarly, understand the tax implications of your investment decisions. Tax-efficient investing strategies can help maximize your after-tax returns.

4. Regularly reassess and rebalance your portfolio

Regular portfolio review is crucial for maintaining an optimal asset allocation. While professional fund managers might review portfolios quarterly, individual investors could opt for semi-annual or annual reviews. During these reviews, assess whether your investments are still aligned with your goals and risk tolerance.

Major life events should trigger a portfolio reassessment. Marriage, divorce, the birth of a child, career changes, or approaching retirement can all impact your financial goals and risk tolerance. These events might necessitate adjustments to your asset allocation to ensure your portfolio still serves your needs.

As you age or your financial situation changes, your risk tolerance might shift. For example, as you near retirement, you might become more conservative in your investments to preserve capital. Conversely, increased financial stability might allow you to take on more risk in pursuit of higher returns. Regular reviews allow you to make these adjustments thoughtfully and systematically.

5. Consider current economic trends

While your portfolio should be built for the long term, staying informed about current economic trends can help you make more educated investment decisions. Keep an eye on factors like interest rates, inflation, and overall economic growth. These can impact the performance of different asset classes and might influence your investment choices.

Global events and market conditions can present both risks and opportunities. For example, geopolitical tensions might increase market volatility, while technological advancements could open up new investment possibilities. Stay informed through reputable financial news sources, but be cautious not to let short-term news drive long-term investment decisions.

Consider seeking professional advice to help interpret economic trends and their potential impact on your portfolio. A financial advisor can provide valuable insights and help you navigate complex market conditions. Remember, the goal is not to time the market perfectly, but to make informed decisions that align with your long-term investment strategy.

If you are a Metrobank client and want to know more about the bank’s model portfolios, please get in touch with your relationship manager. If you wish to become a client, please sign up here so you can begin your wealth journey with us.

CRISTINA GABALDON or Gabs, is the Head of Investment Management Division of Metrobank Trust Banking Group. In her over 16 years of market experience, she has taken on roles such as Chief Investment Officer and head of equities in some of the country’s biggest banks and insurance companies before joining Metrobank. Gabs graduated from De La Salle University with a Bachelor’s degree in Accountancy and Economics. She is also a Certified Public Accountant (CPA) and a Chartered Financial Analyst (CFA). She previously served on the board of trustees of CFA Philippines and is currently on the board of trustees of the Fund Managers Association of the Philippines (FMAP) as president. She recently won Citywire’s Top 25 ASEAN Selectors in 2024.She loves spending time with her husband and two kids. Gabs is also an avid painter and joins art exhibits from time to time.