Questions to Answer before Creating Your Investment Portfolio

If there is one thing that independent financial advisers can agree on, it’s the fact that creating an investment portfolio requires careful thought. Here are a few questions new investors may wish to answer before creating an investment portfolio for themselves.


1. What are your financial goals and risk tolerance?

Before answering this question, it is important to note that a financial goal, or investment objective, is more than just “making as much money in the shortest possible time”. Some common examples of investment objectives include retirement and children’s education. Identifying this objective is crucial because it determines the amount and time needed. Risk tolerance is also important because it helps portfolio managers shape your investment portfolio.


2. Have you set aside enough for an emergency?

This amount generally ranges from 3 to 9 months of one’s salary. After consulting with your independent financial adviser, you might realise that setting aside sufficient funds is the foundation of any good investment strategy. Setting funds aside reduces the disruptive effects that emergencies – such as layoffs – could wreak on the current investment strategy. Without an emergency fund, an investor would have to sell off more of his existing investments in the event of an emergency.

3. What investment instruments do you have access to? Do you understand the function and risks of each type?

Investment instruments, in general, refer to contracts – such as unit trust funds, shares and bonds – that allow investors to buy into funds, equity or loans. Identifying the investment instruments available for use is vital given that investors can only create a portfolio based on the instruments they can gain access to.


4. When designing a portfolio, what strategy are you going to adopt (value or growth driven, based on technical or fundamentals)?

Financial Alliance’s Wealth Management Director Mr Sani Hamid advises, “Ideally, portfolios should run on a certain set of parameters and not on the whims and fancies of the investor. Those set parameters help to set a disciplined way to invest.”

Typically, some thought and time are spent at the beginning when the portfolio is being designed. Thereafter, time is spent on monitoring for risk management and rebalancing purposes. Rebalancing re-aligns the weightage of invested funds to the desired allocation ratios, and this is necessary as funds perform differently vis-à-vis to each other over time, causing the portfolio to deviate from the desired allocation.

Many financial consulting services, such as the services provided by Financial Alliance, typically rebalances their clients’ investment portfolio once a year. Although rare, rebalancing is also done after a particular asset class rises or declines sharply and suddenly disrupts the overall percentage allocation of the investment portfolio.


5. Are you financially-literate enough to design and manage your investment portfolio?

Managing an investment portfolio is a complicated matter, and it has become more difficult to manage investments in recent years. As such, one may be interested to explore the many financial consulting services and portfolio management services available in Singapore. That being said, it is still possible for someone outside the financial consulting services industry to manage his/her own portfolio without consulting an expert, especially if the strategy adopted is a buy-and-hold strategy where the investor aims to ride through the cycles with little intervention to smooth out the volatility. However, it is crucial for the investor to understand that such a buy-&-hold strategy could entail riding through a high degree of volatility.


6. What is your current financial health?

According to a subject matter expert in the field of financial consulting, a person is in the best position to start investing if his/her financial health is good. In other words, one must have a net positive balance every month.

In short, it is important to learn the basics of investment and prepare yourself before creating an investment portfolio. Answering the questions listed can kick-start the process and help set up a guide for future investment directions. If you’re interested engage an independent financial advisory firm to request for financial consulting services, click here.