Image: usplash/ René DeAnda
In the previous post, we discussed some "mathematical" reasons to maintain a diversified portfolio. Now, we will discuss:
How to create a diversified portfolio?
The most important step is to start with the analysis of the investor's profile and their risk tolerance , as the diversification project is closely linked to the investor's risk profile. For families that have a good monthly income from other sources, we can opt for a wealth growth strategy. While for families that depend on income from funds, we can look for income generation strategies.
The second step is to determine the time horizon you want to allocate your portfolio to . This step can be challenging, as we often overestimate how long we can hold an investment and run the risk of selling assets ahead of schedule due to unforeseen circumstances or new opportunities.
Next, consider the types of diversification available : currency diversification, asset diversification, sector diversification, term diversification, geographic diversification, among others.
Where to start my heritage project?
Start with what you already have and adapt the strategies according to your profile.
Pyramid Strategy: The pyramid strategy is suitable for investors who depend on their investments as a source of income. The base is made up of less risky assets such as real estate and physical assets providing stability. At the intermediate level, we find fixed income assets, while at the top are the highest risk assets, balancing the return potential with the security of the base. This approach offers a tiered investment system to meet the needs of families with a conservative and moderate profile.
Inverted Pyramid Strategy : It is recommended for families with income from other business sources, allowing greater risk tolerance and prioritization of capital gains over security. Consequently, a significant portion of the equity is allocated to risky assets. Aimed at bold and professional profiles.
Balanced Strategy : Consists of dividing assets into two parts, creating a balanced allocation between the financial market and physical assets . The ideal ratio depends on the income needs and risk appetite of the investing family. It can be used in all investment profiles.
In short, there is no definitive mathematical formula for determining the best portfolio allocation for an investor. Although Graham suggested a 50-50 formula, which I highly respect, I would say this: and avoid investing amounts that you cannot afford to lose in risky assets and in assets with which you are less familiar.
If you need a CNPI analyst to help you design your company or family's portfolio, contact me.