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Any good builder knows that you will never build a house on sand. Well, let me rephrase that a little. You would not build a house on sand if you wanted it to stand up to the elements and remain steadfast for years to come – sand simply will not support the structure for you.
The vital element of any project is its foundations, the basis on which all other actions and decisions are made as a follow on. Good foundations will mean you can build a bigger, stronger structure that will stand the test of time.
Although it may not seem immediately obvious, the same can be said of your investment portfolio – it must be set up on solid principles and foundations to make sure that as you build it, the structure will remain intact.
One of the most stable structures known to man is a pyramid, just think how many thousands of years the Egyptian pyramids have stood strong against the elements. Now, if you are planning to set up an investment portfolio, you could do far worse than consider this geometric shape for your portfolio.
Let me explain. There are many different types of investment you can use within a portfolio, and as a base you need the most solid and trustworthy building blocks, which is where the majority of your money would go. These would come in the form of bonds – government bonds or gilts will only not pay you what is due if the country goes bust, so are a relatively safe form of investing – or cash in accounts. This money has the least likelihood of falling in value, so having this as a solid base for your portfolio to be built on makes sense.
As you go slightly further up the risk scale, you have the likes of mutual funds, high-yield corporate bonds – which are more likely to default because the reason they yield more is that the market is unsure about their safety – and property. The latter is a difficult one. It is highly illiquid, unless you are investing in a property fund, yet the way that property has performed in some regions of the world in the last decade has proved that property investing can bring real benefits.
Exchange traded funds would also come into this camp, as these index tracking funds allow you to follow the performance of an index over time – great when it is going up, not so good when it is going down. But there is rarely a fund manager involved in these funds, meaning they are very cheap to use.
At the top end of the risk scale you have the likes of emerging market funds and derivatives, which both provide the potential for big returns in a short space of time, but also the chance of you suffering big losses.
All of these can be rejigged or amended to suit your needs, but no matter how you split your savings, you still need to keep the basic structure the same to make your portfolio effective.
Setting up a portfolio is never easy, keeping an eye on it and making sure it is on track is even harder. That is where the professional help comes in. But remember, you must get your portfolio built in the right way from the start, otherwise you are likely to find that all of your dreams your savings are hoping to fulfil really are built on sand.
For assistance in looking at your investment options get in touch to arrange a free consultation.
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