Building a Financial Portfolio

A financial portfolio is a collection of financial assets and investments held by either an individual or a company. Such a portfolio is designed according to the portfolio holder’s financial assets, investment objectives, time and risk tolerances.

Many of us fall into the cycle of earning, saving, and spending. People might save up a portion of their earning for a future purchase, vacation or to be prepared for emergencies. But later on even that money will slowly lose its value as time progresses. The price of things will rise with inflation and one needs to make sure that their income is high enough to keep up with it. That is where investing comes in. Putting your hard earned money to work with a proper and successful strategy is the foundation to generating long-term wealth.

With that in mind Smart Family discussed with some experts from the finance sector about some important topics regarding investing and making a Financial Portfolio.

What is a financial portfolio?
Basically, a financial portfolio is a collection of investments that bring an amount of return to an individual or organization. It is a way to earn from different investments that a person can make. The idea of making your money works for you by making proper investments is the basis of creating a financial portfolio. 

How does one create a financial portfolio?
A financial portfolio can comprise of one financial resource or a group of valuable resources. Creating a financial portfolio depends on the person’s assets, needs, and objectives. It can consist of one or as many investments that are of certain value and worth. The main idea is to build a diverse portfolio by investing in different sectors such as manufacturing, banking, stocks, hydropower etc. to diversify one’s investments so that it financially grows and benefits the investor in the long run. With that in mind and a proper understanding of the economy and the market one can build a financial portfolio by keeping track of all his or her assets with value and investing in them accordingly.

What is in a financial portfolio? What does it comprise of?
A financial portfolio can range from a small fixed deposit account to a large area of real estate. As long as what you possess has value in the market and has the potential to bring in money, it can be part of a financial portfolio. Creating the portfolio also depends on a person’s understanding of his or her asset and the risk to reward ratio. Majority of the people build their financial portfolio with stocks, shares, real estate, land investments, gold, business partnerships, etc., as these tend to have a variable risk to reward ratios and have the potential to maximize the returns on their investments. Ultimately, the assets that yield money year in and year out as long as it has been invested in can be part of a financial portfolio.

What are some of the best assets to have in a portfolio in terms of Nepal?
Anything of value that brings in returns in investments can be included in a financial portfolio. There are quite a few options in Nepal despite the limited financial structure. One of the safest and low risk assets to include is putting money in Fixed Deposit. It is the smallest, easiest and decent methods to get started on one’s financial portfolio. Though it does not give much yield financially, it does have close to no risk. Many banks provide these fixed deposits to people who are interested.  Another asset is buying and investing in volatile stocks such as microfinances and life insurances. This has been quite a trend and it tends to be very fluctuating and does skyrocket. Though it has the potential to increase exponentially, the risks are also equally high. With such investments, it’s very crucial to have sufficient knowledge of the market and the assets that are purchased and invested upon. Additionally, many other options are investment in hydropower, gold, real estate, land, and business shares.   

What is portfolio diversification?
Portfolio diversification can be defined as buying different assets and financial derivatives in your financial portfolio so that your money and investments can grow in different sectors. This is done so that you don’t have all your eggs in one basket, and you do not risk losing everything that you own at once. These diversifications are done by checking the risk levels and understanding the risk to return ratio as you make your investments. In this context, the things to keep note of are the amount of yield from the investment, the amount of risk, and the ratio of risk to reward. If the ratio of risk to reward is less then it is a good investment. These are the main types of investments that tend to bring you the maximum rewards.

How can one have a good Financial Portfolio in Nepal?
If you want to have a very good financial portfolio in Nepal, then information is the key. You need to know how to look into economy and interpret the information correctly. You should have the mentality of knowing if any news in the economy impacts it positively or negatively and learn how the market works. Developing your market interpretation skills and having the knowledge of when to invest will lead you to earn quarter profits. 

Although many people do not have a financial background and cannot keep themselves up to date with the news related to the economy, they can still build a good portfolio by looking into Portfolio Management Systems offered by financial institutions and banks that help you invest your money for a certain amount of time as per their policies and schemes.