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HOW TO START AN INVESTMENT PORTFOLIO


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 1. Home
 2. Path Market News and Insights
 3. Path Personal finance
 4. Path Investment strategies
 5. Path How to start an investment portfolio

 1. Path How to start an investment portfolio

Tom Larm, CFA®, CFP® 
Portfolio Strategist


STARTING AN INVESTMENT PORTFOLIO

Investments can play an important role in helping you achieve your financial
goals. Building an investment portfolio, though, can feel overwhelming. There
are so many different ways to invest and save for your future. Working with
someone you trust and focusing on a defined set of steps, centered around what
you’re trying to achieve, can make the process much easier and personalized to
you.

Therefore, we recommend working with your financial advisor on these steps to
building a portfolio:

 1. Identify your investing goals
 2. Weigh your comfort with investment risk
 3. Understand your investment time horizon
 4. Agree on an optimal portfolio mix
 5. Ensure proper portfolio diversification




TRANSCRIPT FOR BUILDING YOUR PORTFOLIO VIDEO

One of the many important things your Edward Jones financial advisor does is get
to know you, to understand your financial needs and what’s important to you—and
why—and then work with you to create a portfolio to help you achieve your goals.
So how does your financial advisor actually go about doing this?

They start with your goals. Why do you want to invest money? It could be for
your retirement, your kid’s college tuition, or a Florida mansion to see out
your days.

Next your financial advisor will consider three key risk considerations:

First, how comfortable are you with the ups and downs that come with investing?
It’s important to be honest with yourself about this. Sometimes you think you’re
fine with risk, until the market goes down, along with your account. Higher
tolerance for market swings might steer you toward a more aggressive portfolio;
lower tolerance, a less aggressive portfolio.

Second, when will you need your money for your goals? Let’s say you are
comfortable with high-risk investments and the ups and downs of the market don’t
give you ulcers—do you have enough time to recover from a market downturn if you
plan to retire in 5 years? A longer time horizon might support a more aggressive
portfolio; a shorter time horizon, a less aggressive portfolio.

Finally, there’s the third big question. How much do you really need and what
kind of return will it take to get you there? Requiring a higher return to meet
your objective may also require higher risk and perhaps a more aggressive
portfolio. Extra money is always welcome, but too much risk and you may not meet
your goals—which could be one of the biggest risks of all. 

Your financial advisor helps you select an investment strategy which balances
your needs and risk considerations, and then helps you build a portfolio
designed to deliver on that strategy.

Each strategy has recommendations about where and how much to invest. How much
of your money should be invested in U.S. or international bonds? Or U.S. or
international stocks? We also make recommendations about what areas you should
invest in such as tech, banking, or energy. Spreading your investments in this
way may help manage risk, as one type of investment goes down, another may go
up.

We know that you may have preferences about how your money is invested. You may
choose not to invest in tobacco for example, or have special tax needs. Your
financial advisor can balance these needs and preferences with our investment
strategy recommendations to ensure your portfolio still supports achieving your
goals.

You shouldn’t need a financial degree to understand how your portfolio was
built. That’s what your financial advisor is for. Your financial advisor uses
time-tested processes and Edward Jones strategies to build a portfolio that
helps you achieve your financial goals. Trust your strategy and reach out to
your financial advisor if your goals change or when you're thinking about making
a change to your portfolio.


1. IDENTIFY YOUR INVESTING GOALS

When it comes to creating an investment portfolio, it all starts with you and
your aspirations. Before you begin choosing how to invest, we want you to think
about why you’re investing, as well as your motivations and the values driving
them.

What matters most to you? It’s important that your investment portfolio is based
on an objective that helps you achieve your unique financial goals. After all,
the biggest risk you face is not in the stock market — it’s not reaching your
long-term goals.

Additionally, you likely have multiple goals, each with a distinct purpose and
time horizon. Your financial advisor can help you balance and prioritize all
you're working to achieve. Together, you can develop a financial strategy that
incorporates your investment objectives by considering topics such as:

 * What you would like retirement to look like
 * If you’d like to contribute to a child’s or grandchild’s education
 * If you plan make a large purchase, such as a home or a car
 * If you want to start a business
 * If you want to leave a financial legacy to your children or heirs


2. WEIGH YOUR COMFORT WITH INVESTMENT RISK

Assessing your comfort with risk is important because it’s unlikely you’ll reach
your long-term goals if you abandon your strategy during the inevitable
short-term market decline. Determining and periodically revisiting your comfort
level with risk can help you avoid some emotional investing mistakes, such as
chasing performance.

Growth investments, such as stocks or stock mutual funds, may experience more
market volatility than more income-oriented investments, such as bonds or bond
mutual funds, but can provide opportunities for higher returns. Appropriate
diversification across quality, long-term investments can help align the risk of
your portfolio with your comfort level. Finding that right balance can help you
stay on the path toward your investment strategy.

Typically, your financial advisor will ask you to complete a questionnaire that
can gauge how you might react to risk in different situations. If you’re
building an investment portfolio with your partner or spouse, this is an
important topic to discuss with each other.


3. UNDERSTAND YOUR INVESTMENT TIME HORIZON

You need to determine when you’ll need your money, which is directly related to
your financial goals. Each financial goal will probably have its own time
horizon. For example, if you’re saving for retirement, think about when you want
to retire. If another goal is saving for college, your time horizon will be
based on when your children will reach college age and how many years of school
you plan to pay for.

Typically, the longer you have to invest, the greater your ability to recover
from potential market declines, possibly allowing you to consider investments
with greater return potential. As your time horizon shortens, we recommend
shifting to more conservative investments that typically have smaller price
fluctuations.


4. AGREE ON THE OPTIMAL PORTFOLIO MIX

There are risk and return expectations associated with each investment you
choose. If an investment portfolio is made up primarily of fixed-income
investments, it will likely have lower risk and lower return expectations. If an
investment portfolio is more focused on equities, it will likely have higher
risk and higher return expectations.

Investing is all about balance. For your portfolio, we recommend choosing an
appropriate mix of equity and fixed-income investments based on your unique
situation, starting with your comfort with risk, time horizon and financial
goal(s). Considering additional factors — such as your retirement income needs,
existing savings and whether you want to leave a legacy — can also help you
decide the most appropriate allocation to stocks and bonds.

To help you through this step in the process, evaluate how the risk and return
characteristics of our portfolio objectives align with your situation. This
illustration can help you visualize the risk-return trade-off as you move across
portfolio objectives:



Source: Edward Jones


CHART DESCRIPTION

This graphic demonstrates the tradeoff between risk and return. Higher return is
typically accompanied by higher risk. Over the long run, we expect equities to
provide potential for higher returns than bonds, but they are also generally
more volatile and subject to greater risk than bonds. The amount of equity
increases as you move across portfolio objectives on the graphic from left to
right, which increases estimated returns as well as estimated risk.

Source: Edward Jones Selecting your Retirement Portfolio Objective

The table above represents our guidance on how to select a portfolio objective
for a retirement goal, which we provide as an example. For retirement goals, we
recommend considering your life stage, as well as your comfort with risk and
time horizon.

We’ve identified five investing stages of life related to retirement goals,
dividing them into two categories — accumulation stages and distribution stages.
Accumulation stages represent when you’re saving for retirement. Distribution
stages represent when you’re already retired and using your investments to
support your income needs.

Use this table as a guide to help you determine your unique portfolio objective
for your retirement goal. First, find your life stage and time horizon across
the top. Then, estimate your risk tolerance using the descriptions on the left
side.

For example, if you’re in your early investing years and have a high risk
tolerance, a growth focus portfolio objective may be right for you. If you’re in
your late retirement years and have a low risk tolerance, an income focus
portfolio objective may be more appropriate.


Source: Edward Jones

The table above represents our guidance on how to select a portfolio objective
for a retirement goal, which we provide as an example. For retirement goals, we
recommend considering your life stage, as well as your comfort with risk and
time horizon.

We’ve identified five investing stages of life related to retirement goals,
dividing them into two categories — accumulation stages and distribution stages.
Accumulation stages represent when you’re saving for retirement. Distribution
stages represent when you’re already retired and using your investments to
support your income needs.

Use this table as a guide to help you determine your unique portfolio objective
for your retirement goal. First, find your life stage and time horizon across
the top. Then, estimate your risk tolerance using the descriptions on the left
side.

For example, if you’re in your early investing years and have a high risk
tolerance, a growth focus portfolio objective may be right for you. If you’re in
your late retirement years and have a low risk tolerance, an income focus
portfolio objective may be more appropriate.


Source: Edward Jones Selecting your College Education Portfolio Objective

The table above represents our guidance on how to select a portfolio objective
for a college savings goal, which we provide as another example. For college
goals, we recommend considering your child's age (assuming they go to college at
age 18), as well as your comfort with risk.

Use this table as a guide to help you determine your unique portfolio objective
for your college goal. First, find your child's age across the top. Then,
estimate your risk tolerance using the descriptions on the left side.

For example, if your child is 5 years old and you have a high risk tolerance, a
growth focus portfolio objective may be right for you. If your child is 17 years
old and you have a medium risk tolerance, an income focus or preservation of
principal portfolio objective may be more appropriate.


Source: Edward Jones

The table above represents our guidance on how to select a portfolio objective
for a college savings goal, which we provide as another example. For college
goals, we recommend considering your child's age (assuming they go to college at
age 18), as well as your comfort with risk.

Use this table as a guide to help you determine your unique portfolio objective
for your college goal. First, find your child's age across the top. Then,
estimate your risk tolerance using the descriptions on the left side.

For example, if your child is 5 years old and you have a high risk tolerance, a
growth focus portfolio objective may be right for you. If your child is 17 years
old and you have a medium risk tolerance, an income focus or preservation of
principal portfolio objective may be more appropriate.




5. ENSURE PROPER DIVERSIFICATION

Once you’ve agreed on the mix of equity and fixed-income investments that aligns
with your situation, we recommend building a portfolio diversified across a
variety of asset classes. Asset classes are groups of investments that share
similar risk and return characteristics. Asset classes behave differently over
time, and it’s impossible to know which may be the best performer in any given
year.

Having a diversified portfolio helps manage risk, creating a more solid
foundation. But keep in mind that diversification does not guarantee a profit or
protect against loss in declining markets.

Our long-term strategic asset allocation guidance represents our view of
balanced diversification for the fixed-income and equity portions of a
well-diversified portfolio, based on our global outlook over the next 30 years.
Our recommended allocation to each asset class depends on the mix of equity and
fixed-income investments you have chosen for your situation, as defined by our
portfolio objectives.



Source: Edward Jones


CHART DESCRIPTION

This graphic shows how we recommend dividing investments across a variety of
asset classes within the equity and fixed income portions of a portfolio based
on our long-term outlook. The exact weighting to each asset class will depend on
your optimal portfolio mix between equity and fixed income investments as
discussed above and displayed by our portfolio objectives. We call these
recommended weightings to each asset class our long-term, strategic asset
allocation guidance.

Diversifying within each asset class, not just across asset classes, can also
strengthen the foundation of your portfolio. Within equity asset classes,
consider investing in stocks representing different sectors or styles. Within
fixed income, consider investing in bonds representing different sectors,
categories or maturities. Mutual funds and exchange-traded funds (ETFs) can
provide a convenient way to diversify your investments as you begin building
your portfolio.


START BUILDING YOUR INVESTMENT PORTFOLIO TODAY

Making sure you have the right investment portfolio for your financial goals can
be easier to achieve when you partner with the right financial advisor. Edward
Jones will help you build an investment portfolio that aligns with your
financial goals now and in the future.

--------------------------------------------------------------------------------


TOM LARM, CFA®, CFP®

Tom Larm is a Portfolio Strategist on the Investment Strategy team. He is
responsible for developing advice and guidance related to portfolio
construction, asset allocation and investment performance to help clients
achieve their long-term financial goals.

Tom graduated magna cum laude from Missouri State University with a bachelor’s
degree in finance. He earned his MBA from St. Louis University, is a CFA
charterholder and holds the CFP professional designation. He is a member of the
CFA Society of St. Louis.

Read Full Bio

Tom Larm is a Portfolio Strategist on the Investment Strategy team. He is
responsible for developing advice and guidance related to portfolio
construction, asset allocation and investment performance to help clients
achieve their long-term financial goals.

Tom graduated magna cum laude from Missouri State University with a bachelor’s
degree in finance. He earned his MBA from St. Louis University, is a CFA
charterholder and holds the CFP professional designation. He is a member of the
CFA Society of St. Louis.

Read Full Bio


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