You run a risk with investing. With lifecycle, we gradually reduce the risk in your investment portfolio until your target date. It makes your assets less sensitive to sharp price falls due to unexpected events just before your target date. Because the closer the date on which you want to achieve your goal, the less time there is to make up for any investment losses.
Before you start trading on the exchange, clearly state your financial goal. For example, you aim to preserve and increase your investment with minimal risk. Then, a conservative strategy will suit you. It is most suitable for novice investors.
Portfolio diversification. You must distribute your capital between different assets. Even if one of them brings a loss, the growth of others will be able to compensate for these losses. Let’s take an example of how diversification works. Let’s say you bought shares in Aeroflot and Gazprom. All these companies belong to different sectors of the economy. However, such a portfolio may not always be reliable. The fact is that these companies belong to the Russian economy and depend on it. In a crisis in our country, these securities may “sink” along with the expected income. Therefore, add securities of issuers from different countries and sectors of the economy to the portfolio, and pay attention to the fact that companies do not depend on one indicator (The use of the Russian economy is simply an example).
Instrument liquidity. Liquidity is the ability to sell assets quickly and profitably on the stock market. We recommend that novice investors buy instruments with high liquidity.
What Principles Should You be Following when Choosing Investment Instruments?
Analysts and economists generally agree that inflation is unlikely to derail right now. Nevertheless, every portfolio should include some form of inflation protection. And that is especially important if the economy continues to heat up. For capitalization investors, stocks are the best way to stay ahead of inflation. Those who are (nearly) retired should again be careful not to be too cautious with bonds and cash because even average inflation is currently eating away at the low returns of such securities.
Retirees and near-retirees should also ensure that their portfolios include targeted inflation protection, as the higher cost of living slowly but surely gnaws at the purchasing power of the money they withdraw from their portfolios.
As a result, prudent equity investors should be careful in their choices and ensure that their portfolios are not unnecessarily exposed to overheated sectors. Defensive sectors such as healthcare and consumer staples were cheap a year ago, but now they are trading at prices in line with or slightly above our analysts’ fair value estimates.
Fund investors should reasonably target new purchases in funds that fall into the value segment of the Morningstar Style Box. The managers of such funds may reduce their exposure to overheating stocks and sectors and increase their exposure to stocks and sectors with better earnings potential. Sensitive sectors such as materials and energy currently show the most compelling valuations. The same goes for utilities and technology. Does all this mean you must mess up your portfolio and invest everything in energy producers and gravel suppliers? No. But if you’re taking new positions in individual stocks, it’s best to start with securities with a 4- or 5-star Morningstar stock rate, which indicates a low valuation.
What can You Add to a Portfolio?
We advise you to build a portfolio for passive investments for novice investors. You will not need to make transactions daily, constantly follow the news, and study the financial statements of the company day and night. Passive investments are less susceptible to sudden changes in the economy and are suitable for investors who do not yet have profound experience and professional knowledge. Investing in precious metals can also protect you from unfavorable market conditions. However, their share in the portfolio should not be too large.
We remind you that no universal investment portfolio would suit every novice investor. The set of assets depends on your goals, capabilities, interests, attitude to risk, and investment duration.
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