Portfolio Assets
The fundamental rule of building an investment portfolio is to diversify investments across different assets such as stocks, bonds, real estate, commodities, and more.
This isolates the portfolio from downturns in certain assets or specific markets. Three key aspects must be considered when allocating assets: investment objectives, investment horizon, and risk tolerance.

• Financial and Investment Goals
Before starting to build your investment portfolio, you need to evaluate your short, medium, and long-term investment goals. Short-term goals, such as vacations or home renovations, should be achieved in less than three years. Medium-term goals, such as education costs, may span three to ten years. Long-term goals, such as retirement or buying a home, may take more than ten years to achieve. Therefore, your asset allocation should reflect these specific goals.

• Investment Horizon 
This is the period during which you expect to hold your investment. You should determine the investment horizon for different assets in your portfolio based on your investment goals, ensuring that your portfolio includes assets that mature at the appropriate times to meet short-, medium-, and long-term goals.

• Risk Tolerance in Portfolio Construction
Risk tolerance depends on the level of risk you are willing to take and is influenced by your income, expenses, and readiness to take risks. This level varies from person to person and can change over time. For example, risk tolerance may increase with higher income and decrease with higher expenses. Age also affects risk tolerance; those nearing retirement may be less willing to take high risks.

• Risk Diversification
Risk diversification is a key principle of smart investing. It is based on the idea that different assets are exposed to varying levels of risk. It aims to reduce the impact of risk by investing in a variety of assets. Low-risk investments usually yield lower returns, while high-risk investments generally yield higher returns. By investing in diverse asset classes, we can balance risk and safety. Diversification should encompass each asset class, protecting the portfolio from sudden market fluctuations.
Diversification of risk means balancing investment risks. High-growth stocks yield the best returns compared to low-risk, low-return assets such as stocks or bonds in the market.

• Investing in Mutual Funds
Many investors consider mutual funds with regular cash flow a stable long-term investment with limited capital. Despite being a safe investment method, mutual funds with a Systematic Withdrawal Plan (SWP) also help provide regular cash flow. With regular withdrawals, investors can withdraw a fixed amount regularly, whether monthly or quarterly, ensuring a steady income from investments. These funds offer flexibility in determining the amount and frequency of withdrawals, making them an ideal choice for meeting regular income needs.

• Stop-Loss Orders
Portfolios are primarily geared towards long-term investment, allowing them to grow over a specified period while considering associated risks. For long-term investors, a buy-and-hold strategy may be more effective than day trading, requiring continuous vigilance and a deep understanding of the market. Simultaneously, limiting losses is crucial by using strategies like stop-loss orders, detailed in previous articles. These orders allow the broker to buy or sell financial assets when the market price reaches a pre-determined level, protecting the investor from additional losses.

• Minimizing Portfolio Risk
Minimizing portfolio risk is essential, emphasizing risk management and reducing investor exposure to uncertainty through risk diversification. This is the most effective strategy for addressing all three types of risks. Sovereign risk can be minimized by ensuring the portfolio does not rely entirely on government securities for stability. Diversifying stocks reduces inflation risk, while bonds and mutual funds are designed to offset the risk of capital loss. Investors should closely monitor the market and use loss-limiting strategies, like stop-loss orders, to mitigate and avoid risks.
Another key aspect of portfolio risk management is regular review and rebalancing. Our risk tolerance changes over time and with fluctuations in income and circumstances. It is important to assess the portfolio to determine the balance between high-risk, high-return investments such as stocks, and low-risk, low-return assets like bonds or fixed-income securities.
Additionally, regular reviews are important to track investments and the annual growth of the portfolio. Over time, a more accurate understanding of your portfolio’s behavior and the best ways to optimize it can be gained. Most importantly, this ensures the investment portfolio can adapt to changing needs.

• Minimum Investment Portfolio
This ensures financial stability, independence, and planning for market fluctuations, guaranteeing regular income, and providing the financial freedom to cover expenses by allocating sufficient savings each month. It also builds the financial discipline and confidence needed to make sound financial decisions and create future plans to improve portfolio performance.

• Market Research and Risk Assessment
To be a long-term investor, you must research the market and understand the factors that influence its movements, such as the financial market, capital market, credit market, foreign exchange market, and debt market. The monetary policy of the country, inflation rate, interest rates, and supply and demand are some of the factors that affect market fluctuations.

Furthermore, you must evaluate the risks associated with any investment before proceeding, including qualitative risk analysis, which requires considering the company’s context, such as its governance, compliance, competitive advantage, brand value, and risk management practices.
It is worth noting that no investment is risk-free, as even the most reliable assets can experience unexpected downturns. Portfolio risks can be divided into three main categories: sovereign risk, capital loss, and inflation risk.

Sovereign risk arises when a government or state fails to honor its debt or loan agreements, potentially jeopardizing secured investments like government securities. Capital loss refers to the possibility of losing part of the principal or original investment, prompting many conservative investors to choose low-risk assets to minimize the risk of capital loss.

Inflation risk pertains to the possibility that the portfolio’s value may decline below the expected level due to inflation, impacting the real rate of return on individual investments. This is often associated with fixed-income securities and bonds.