The myth
Picking the right assets can take time, especially if you’re new to investing. That’s because, aside from your risk profile, you also need to consider the characteristics of those assets.
After all, some assets can behave differently from others, so investing in assets that grow the same way can be helpful when you’re trying to achieve a financial goal.
That’s why many people believe that you should have a portfolio for each goal.
The reality
The choice of which assets go into a portfolio depends on what you’re trying to achieve. For example, if you’re investing to earn extra income independent from your salary, you might want to consider fixed-income instruments such as bonds and REITs.
On the other hand, if you want to have a certain amount of money by a specific date that is several years away, you could be looking at stocks of companies that have the potential to grow well.
Money Market instruments, in turn, might be viable investments if you want to protect the value of your money while staying liquid enough to respond quickly to good opportunities.
Mixing all these asset classes in one portfolio is doable, but if you’re trying to achieve a specific goal, you might get the best results by choosing assets whose characteristics give you the highest chance of success.
The verdict: It depends (but mostly true).
Having just one portfolio isn’t bad, especially if you’re new to investing. However, if you have multiple goals which are quite different in terms of what you would call an achievement, having separate portfolios for each might give you the best chance at reaching them.
Don’t forget that you should still try to diversify within each portfolio to reduce the risk of an unfortunate event causing a massive impact on the value of your money.
Also, using your risk profile as a guide in selecting assets should always be done so you don’t expose your money to more risk than you’re comfortable with.
If you can’t maintain multiple portfolios just yet, that isn’t a problem. You can always start with one portfolio that tries to achieve one goal and work your way up as you gain more experience and improve your financial capacity for investing.
