Summary: How do you craft a portfolio?Assembling a financial portfolio is a lot like building a house. Everyone has a basic need for shelter, but once you get beyond the basics there are all kinds of decisions to make—where to locate, how big to make it, what kind of materials to use, and so on. Building a home can be stressful—but it can be exhilarating, too.In the same way, putting an investment portfolio together can be stressful but also can be exciting. The projects are similar, especially because they both start with the owner’s needs, desires, and resources. By taking stock of yourself, you end up with a much more satisfying product. The first question to ask is what do you want your portfolio to accomplish. Some people are looking for supplemental income, others are saving for their children’s college tuition, and other people have other goals. Whatever the objective is, write it down. Then try to make a rough estimate as to what this will cost. For example, many private colleges cost about $200,000 over four years. If you can only set aside $400 / month, that will accumulate $72 thousand over fifteen years. If you want to have half the cost of college saved up, this goal implies that you will need about a 5% return over this period. If you can save more, your required return is lower.Your required return will indicate what kinds of assets you need to invest in. Everyone wants safety—but most people also need growth. By specifying your objectives, you can sketch out a plan that is more likely to meet your needs, without keeping you up at night.Douglas R. Tengdin, CFA Chief Investment OfficerFollow me on Twitter @GlobalMarketUpd
