|Just as building a home begins with a blueprint, you need a pattern for your portfolio. The blueprint tells the builder to build a structure of a particular size and shape, with specific features, to suit the needs of its future owners. Similarly, your portfolio should suit your needs and specifications.
The best starting point when creating your portfolio blueprint is to focus on your investing goal. Maybe you're investing for retirement, for your child's education, or for a vacation home. We'll cover goals at length in Portfolio 102: Determining Your Goals and What They'll Cost.
Whatever your goal, it gives you vital information. It tells you how long you'll be investing (your time horizon), and how much of your investment you can put at risk. The closer your goal or the less you can afford to lose, the more you should focus on preserving what you've made rather than on generating additional gains.
How much should you put into cash, bonds, and various types of stocks? One rule of thumb is to use your age as a guide. For instance, if you're 33 years old, put 33% of your portfolio into cash and bonds and the rest into stocks.
Some investors might find that figure conservative, though. Others might find that it's too aggressive for their particular goal. Such rules are like buying a home without taking a tour inside. Sure, it looks good from the outside, but does it really suit you and the way you live? Maybe not. We'll show you how to determine what cash/bond/stock mix is right for you in Portfolio 105: Determining Your Asset Mix.
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