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For the uninitiated, portfolio and investment strategy can sound like big words. However, if you have money in the bank, even just a checking or savings account, you have a portfolio. And, if all you do is save what money you can each paycheck and put that into your account, then you have an investment strategy, be it the most basic of strategies. There are all sizes and shapes of portfolio, and all forms of simple to complex investment strategies. In general, there’s nothing scary or mind blowing about portfolios and investment strategies, but there’s a lot of hype and confusing talk that could make them seem so. I’ll cover three basic factors, risk, wealth, and planned usage that help you decide what kind of portfolio you should have and what your investment strategy should be.


The challenging part of creating a portfolio is realizing your risk factor, and if you go to a “professional”, the first thing they’ll have you do is fill out a risk assessment form of some sort. All these try to do is assess the Five Controlling Factors, and estimate very broadly what type of investments you should invest in. No matter what, though, everyone uses the same tools for building a portfolio being 1) cash and cash equivalents, 2) fixed income (aka bonds, CDs), 3) equity (aka stocks, mutual funds, index funds), and 4) tangible assets (the home you own and live in or other property you own) or business adventures (companies you own and help run).

For the most part, the risk assessment forms are for figuring out what kind of stock you should own as there are all levels of risk and volatility associated with stocks which typically make up anywhere from 50-90% of your portfolio. Although the differences of who should invest in what levels of risk might surprise you when you consider lifestyle vs. portfolio risk as the wealthier you are the less risky the asset you typically want because you’re less worried about growing your wealth as you are maintaining your wealth and sustaining your typically more expensive lifestyle. Imagine having $10,000,000 and losing 10-20% on any given day – that’s $1-2 million – vs. $1,000 and losing 10-20% on any given day – $100-200. Day-to-day stock prices can fluctuate up and down as much as 20% or more, and for those who aren’t familiar with the markets, this can seem like a very scary thought. For that reason, you need to think long term as in years which can historically return up as much as 10% or more, and if you’re well diversified, then you can be rest assured, you’ll make money over the long term.


I could cover plenty more about risk, but I’ll continue with the other two major factors, usage and money, and cover all of these factors further in future posts. Wealth was already mentioned, but there are three levels of importance to the wealth equation and how you’ll go about making decisions. The beginner’s problem is typically amount of funds and cost of investing, then there’s the middle and upper classes which are similar and more concerned with type of risk and return from their portfolio. The middle class, which doesn’t have more money than they can retire on before actual retirement, is similar to a beginner’s portfolio strategy where the goal is growth of wealth. The middle class is more like the upper class in that they have nearly all investment options open to them because they simply have enough money.

The best form of investing is generally owning a set of different index funds of different asset class types creating a well diversified portfolio, but many funds require minimum investment of $3,000 and up, so purchasing 5 to 10 of these for a solid portfolio can be a limiting factor depending on absolute wealth. There are ways to get around the minimum requires such as setting up accounts like a Roth IRA or 401(k) with regular automatic deposits of $50 a month. As long as the brokerage or bank is certain of getting regular deposits, they’ll usually waive minimum investment requirements, and if you begin by investing in a single fund like Vanguard’s Target Retirement funds, then you get one fund that itself is multiple funds, and it adjusts its asset allocation as it and you age adjusting for your new risk outlook. Honestly, there’s nothing wrong with owning just one fund like this. It saves you tremendous amounts of time and possibly money, but for those interested in doing a little more, there can be a slight advantage to doing it differently, but I stress slight as it’s less a factor of getting better returns as it is decreasing risk.


While the wealth you already have will change the decisions you make, so will how you want to use the money you’re investing. It’s best to start with retirement investing, especially the younger you are because the longer your money is invested, the more money it’ll make you through compounded interest (and I’m talking about hundreds of thousands of dollars). Everyone hopes to retire at some point, so investing for retirement is always a safe and wise choice, especially with tax advantaged retirement accounts.

Alternatively, you might be looking to buy a new car or home, and would rather not tie up all your money in retirement accounts. Or, you’ve just gotten married or have a baby coming, so you have special needs popping up that you didn’t have before. Each of these and your time horizon until usage will change what kind of investment you make. The basic decision is between putting your money in a retirement account and leaving it until you retire, or putting it into a taxed account where you’ll be able to get at the money again in the near future. The investment strategy that you’ll follow for any choices you make usually involves rebalancing and investing new money evenly based on your planned asset allocation.

Future Posts

The next post along this line will delve into choosing the asset allocation of your portfolio and how each choice might change you investment strategy. Also, look forward to a primer for this post. I know, a primer should come before the thing its priming, but tough luck, I’m posting based on my whims at the moment. I think I’ll call it, What is a portfolio and an investment strategy? I’ll also cover more on risk, wealth, and usage in greater detail another time as my whims come and go, but if anyone reading wants me to go in one direction or another, then please contact me.