Coming up with a personal investment strategy can be overwhelming. That's why it's important to understand the basics of the equation.
Whether you have a financial advisor, get help from your friends and family, or are your own consultant, there are three key questions you need to ask before creating a portfolio strategy, according to a new report from the Motley Fool's Robert Brokamp.
Each question will help you grasp an issue that is directly relevant to either you or your investments. They are:
1. What's the time horizon for your portfolio?
Knowing how long you need your money to last is essential to creating a portfolio strategy. You should outline when you plan to begin making withdrawals on the portfolio and any major contributions you foresee, Brokamp writes.
2. How risk-averse or risk-tolerant are you?
Some people aren't fazed by the ups and downs of the market, while others find them unbearably stressful. "Figuring out where on the spectrum you fall is important because it not only will dictate your investing strategy, but it will also ensure that you concentrate on what matters most to you (family, hobbies, retirement) - instead of constantly worrying about your portfolio," Brokamp explains.
3. What's currently in your portfolio?
Trying to create a new portfolio strategy without considering your existing assets - and the limitations on them - is a rookie mistake. "It's impossible to paint a new picture without evaluating the old one," Brokamp writes.
For more personal investing tips, check out the full report here.