Hello Investors !! How are you guys? We all know a portfolio should be diversified and concentrated at same time but how is the biggest question. Let’s see how to create an investment portfolio.
First of all Your investments should be well diversified into Property, Bonds and Equity. You can also invest in Gold but I do not recommend it due to very low rate of returns. Your net worth should be divided into Property-Bond-Equity-Cash in the ratio of 30%-15%-50%-5%. Here we have 50% of your net worth in equity because of the high rate to return yield. Now Let’s see how to create a investment portfolio.
Investment in property is 30% because property gives returns in two forms. First is rent and security earned over property. You get the lump sum amount in the form of security which you can invest further and rent on the property at a prominent location is very high. Return on property is risk free and it can earn a good amount of money over a time period.
Second the rates of property increase over the time with a constant rate. With the inflation, property also get costlier over time. So your investment in the property will not be in negative any year because inflation will never be in negative. Lets consider inflation rate in your country is 2% then it means you earned the 2% on your property or you can consider it as non depreciation factor because the cost of your property is still same.
Property bought smartly can give you a good return over time. It has some very important factors to consider while purchasing the property such as location, connectivity and near by areas.
Investment in equity is 50% of your net worth. Investment in equity is riskier in short time duration but in long time duration it is almost risk free and high rewarding mode of investment. Businesses have always given better rate of return in comparison with other investment ideas. We are creating a concentrated portfolio so there will not be more than 10 companies in the your box.
If you buy good businesses then surely you are going to be rich in future. Equity portfolio should again be diversified. People should invest in four categories Large Caps, Mid Caps, Small Caps, Micro caps.
Large Cap companies are the well establish top class companies which are stable and drive the market indexes. There are very less chances that you will lose your money. You might earn less return than other categories but your money is safe. You should invest 40% of your money in Large cap stocks. These can be big private bank, FMCG and IT service companies. These three companies can have 40% of your equity investment. Remember this 40% is going to save you many times in the share market. These companies must have 15-20% profit growth every year.
Mid cap companies are smaller than Large Cap but they have the capacity to become next large cap. These companies are more riskier than large but they have the high rate of return. You have to invest 30% of your equity investment in mid cap so that you could earn better return. These companies can be insurance and finance or chemical companies or auto mobile companies. YoY profit growth for such companies should be 25-35%.
Small cap companies are those companies which can become next mid cap and then large cap. You have to invest 20% of your equity amount in the small caps. These are companies where you see the growth in coming years. These companies always has a story which can nurture over the years. Companies can be picked from any sector which you think can grow rapidly in your country. These companies have at lease 40-50% profit growth per year.
These are the very small companies or some kind of startups. Here you just see the idea behind the business. If you belive that this idea has the potential to get large appreciation in future the go ahead and invest 10% of your equity investment amount.
Rest 10% you have to preserve for the opportunities coming to your way as an investment idea. Where you see any opportunity in the market go ahead and invest some of the amount.
Bonds, Debt funds or FDs are the risk free investments. It is kind of cash which can be utilized in emergency situation. You always keep some money in this form where you can earn regular income in the form of interest or bond yield. This is 15% of your total networth.
You would be wondering why cash? So the answer is you have put all these years in earning and saving money. Now you must keep at least 5% cash of your net worth in your bank account so that you could leave happy and tension free life. Go enjoy your life and spend the cash and don’t worry, you are going to earn a lot of money with the 95% of your net worth which working for you day and night.
So we have discussed that how to create a investment portfolio. Guys If you like this post then please comment and let me know if you have any different opinion on this. If you want to know more about the investing then pease read my other blogs. Here some famous books on investment go read and become and expert.