Investment Strategies for Beginners: Tips for Building a Diversified Portfolio in 2023

by Kamal Lidder, LLB. (Hons) CIM, Lidder Wealth Management Advisor Group

Since I began working with BMO Financial Group and moved over to their Nesbitt Burns Wealth Management division, it has been more than eighteen years. I've observed how the financial markets have changed. I frequently witness novice investors struggling to develop investment ideas. Many people I have observed frequently ignore the fact that investing can be a fantastic strategy to gradually increase your money, but it can also be intimidating for novices. Spreading your money among various investment kinds to reduce risk and increase returns is one of the secrets to effective investing. Here are some guidelines for new investors on how to create a diverse portfolio:

1. Start with low-cost index funds: Investing in low-cost index funds is one of the easiest and most efficient methods to diversify your portfolio. These are investment funds that follow a market index, like the S&P 500 and give investors access to a wide range of stocks.

2. Add bonds to your portfolio: Bonds are financial instruments that firms or governments issue and which are repaid with interest over time by bondholders. They offer a consistent income and might help counteract the risk associated with stock investing. Start with a low-cost index fund that holds a variety of bonds.

3. Look at different types of assets: Although the two most popular investment options are stocks and bonds, it's important to consider other alternatives as well, including real estate investment trusts (REITs), commodities, and even cryptocurrencies. Beyond stocks and bonds, diversification can help balance risk and rewards, but it's crucial to do your research before devoting a sizable amount of your portfolio.

4. Rebalance your portfolio regularly: The percentage of your assets allocated to various investments will fluctuate as your portfolio expands. Your exposure to particular investment types may increase as a result, which may raise your risk. It's crucial to regularly assess your portfolio and bring your investments back into line with your goal allocation if you want to keep it balanced.

5. Be patient and disciplined: A long-term perspective is crucial since investing is a long-term plan. Keep your eye on your objectives and resist the need to make rash deals based on momentary market swings. Maintain your financial plan with patience.

6. Have an emergency fund: Make sure you have an emergency fund that can cover several months' worth of living expenses before you begin investing. This can assist you in managing unforeseen costs and keep you from having to sell investments at inconvenient periods to obtain money.

7. Have a plan and set goals: It's critical to have a clear understanding of your investment objectives and a strategy for achieving them before you begin investing. Your time horizon, risk tolerance, and the goals you have for your investments should all be listed here.

8. Gradually increase your investments: It's normal for a novice investor to experience anxiety when making a sizable investment all at once. Consider making modest first deposits and then increasing them as you gain experience with the procedure.

9. Have a long-term perspective: Short-term stock market changes might be unpredictable, so it's crucial to avoid being sucked into them. Focus on your objectives while keeping in mind that investing is a long-term plan.

10. Keep your portfolio simple: It might be tempting for a novice investor to attempt to time the market or choose the hottest stock, but it's crucial to keep your portfolio straightforward. Maintain a diversified portfolio of inexpensive index funds rather than attempting to time the market or engage in irrational trading.

11. Keep learning and stay informed: There is always more to learn about investing, which may be complicated. Maintain market and economic awareness and continue learning about various investment types and tactics. This will assist you in making better judgments and adjusting your portfolio when your objectives and the market change.

12. Consult a financial advisor: If you are hesitant about making any investments or if you need assistance developing a unique investing strategy, think about speaking with a financial advisor. They can assist you to understand the complicated world of investing and offer insightful advice.

With improved risk management, you may raise your chances of eventually reaching your financial objectives by using these suggestions and creating a diversified portfolio.

It's crucial to keep in mind that previous performance does not guarantee future outcomes, and diversity does not, depending on the scenario, guarantee a profit or guard against loss. If you are hesitant about making any investments, always conduct your own research and speak with a financial professional.