How to Build an Investment Portfolio

How to Create an Investment Portfolio

First Published: ADawnJournal.com March 14, 2010

What Is An Investment Portfolio?

An investment portfolio is nothing but your collection of investments. You can hold a wide range of investments such as stocks, bonds, money market instruments, and so on in your portfolio. The objective of building a portfolio is to minimize risks and maximize return by diversify it among variety of investments. Diversification can be made within same asset class or across different asset classes. Research has shown that a diversified portfolio spreading across different classes always is the key to build a successful portfolio.

What I Need To Consider Before Building A Portfolio?

There are various factors you should consider before start building a portfolio. These factors are:

– Your time horizon
– Your risk Tolerance
– Your investment objects etc
I discussed about these in another article. Please follow this link to read it – What Is Asset Allocation?

Are There Any General Rules of Thumb Building An Investment Portfolio?

There are too many, actually. I would have to say, the most common rule is the 100 – age rule. This is simply getting the percentage of stocks and bonds you should hold by subtracting your age from 100. For example, if you are 30, you should hold (100 – 30) 70 per cent stocks and 30 per cent bonds. As you grow older, you should be reducing your stock portion according to this rule. When you are 60, you should be holding 40 per cent stocks and 60 per cent bonds.

Another simple portfolio building approach is the Neutral Allocation – which is holding 60 per cent stocks and 40 per cent bonds. Two other portfolios worth mentioning are Lazy man or couch potato portfolios by Scott Burns and The Permanent Portfolio by Harry Browne.

To find many other portfolio ideas, do a search by entering these keyword phrases: “investment portfolio mix,” “portfolio asset allocations tools,” “model investment portfolio,”etc.

Do You Have Your Own Investment Model Portfolio?

Yes, to make investing simple and worry-free, I have been invented a model portfolio called “A Dawn Portfolio” or simply ADP. You can read more about ADP here – (I am still working on this project and will add a link once done)

To find many other online asset allocation calculators, do a search by entering these keyword phrases: “asset allocation calculators,” “portfolio asset allocations tools,” etc

Last Word

Of course, you need to decide if the recommended allocations match with your personal risk tolerance and market views. Investments must be considered in context

If you are at all interested in asset allocation strategies, I strongly recommend that you read about the science. Don’t just follow conventional thinking and rules of thumb.

Ten Timeless Personal Finance Tips By Financial Author Ahmed Dawn

Ten Timeless Tips For Financial Success

First Published: ADawnJournal.com December 1, 2009

The financial crisis is making a lot of people realize that they don’t know how to manage money.  Unfortunately, this is not taught in our schools, but Canada’s Personal Finance Blog – A Dawn Journal is here to help you. This article will teach you all the basics you need to become financially successful. Visit A Dawn Journal regularly for more articles like this.

1. Spend less than you earn. If this is something you can’t do, make arrangements to bump up your income by taking a part-time or an additional job. This number one tip is the most important, timeless financial tip ever. If you can’t do it, all or any other financial tips will be meaningless.

2. Track your spending. I don’t believe that a dollar-for-dollar budget works. However, you should have a rough idea of how much you spend on certain categories. Keep track all of your expenses and adjust necessarily among various categories, i.e., if you see you are spending too much on entertainment, take steps to reduce your expenses. At the end of the day, your expenditures have to be lower than (as mentioned in point 1) your earnings. Use free personal finance software to keep track of your expenses.

3. Pay yourself first. Set aside at least 5-15% (do 5% if you have loans, do more than 5% if you don’t have loans, credit card balances etc) of your gross income into your investment account, savings account, RRSP, TFSA or so on every month. Set up an automatic plan to do it regularly.

4. Have an emergency fund. Have six months’ worth of living expenses in a high interest savings account for emergencies.

5. Set goals. Know exactly when you want to pay off your loan, buy a car, buy a house, and when you want to retire.

6. Pay your credit card balances in full every month. If you already have credit card debt, pay it off first. Credit cards charge the most interest. It is a good idea to pay off credit card balances with a line of credit account, which charges half the interest.

7. Try to avoid buying a car. If you still need to buy, buy a used car. A new car depreciates about 35% the moment you drive it off the lot.

8. Pack your lunch. If you eat out every day, your approximate cost would be as below:

Weekly Cost = $10 * 5 = $50

Monthly Cost = $50 * 4 = $200

Yearly Cost = $200 * 12 = $2,400

$2,400 annually is a lot of money. If you are in a 42 % tax bracket, for example, you keep 58% of each additional dollar you earn. When you consider all the taxes and costs associated with earning that after-tax $2,400, saving $2,400 annually means actually saving $4,000 in pre-tax savings (all figures are approximate). Let’s put it another way – if you can brown bag your lunch, think of it as you are giving yourself a $4,000 raise annually.

If you can’t pack every day, pack at least two to three times a week.

9. Start investing. Investment is nothing but a discipline; it has to be orchestrated with great passion and care. Investment is not like going to the shopping mall and buying a few things impulsively. Start investing for the long run, and keep adding money every month or every week. Stay invested for the long run-through good times and bad, through market ups and downs. If you don’t know how to start investing, I recommend reading Invest Now. Anyone can become a successful investor by following three simple and practical steps mentioned in this book. If you are not comfortable investing on your own, seek professional help. I recommend fee-only financial advisors.

10. Review your progress at least once a year. If you are not satisfied with achieving your financial goal, change or modify your financial roadmap. If you are not sure what actions to take, consult a fee-only financial planner.

What Is A Mortgage Payment Schedule?

Amortization Schedules – Always Keep Your Eyes Open

First Published: ADawnJournal.com December 10, 2009

On taking out a loan, it is not uncommon to get a momentary buzz of excitement on seeing the temporary balance of your bank account, showing as it does a few extra digits above and beyond the usual. It is perfectly common in such a situation to forget the small details, such as the fact that all that money needs to be paid back over time and that, generally, that money will pretty much all be accounted for in the very near future. These details come back to mind very quickly, though, in most cases, as we set about the arduous task of paying back the money we have borrowed. This is something we have to do in accordance with a schedule, and deviation from that schedule is likely to see us hit with a penalty.

A copy of your payment schedule will be one of the documents given to you on finalising your mortgage. It will tell you what you have to pay and when you have to pay it, any payments that are above normal and any that are below. Sticking to the schedule is your way of knowing that you are doing your bit under the mortgage agreement and should see you avoid any fees for non-payment being added to your account. Having a payment schedule should also put to the back of your mind any ideas about taking the money and spending it unwisely. The figures can make very sobering reading.

With a normal bank loan, taken out to pay for consumer goods, you will generally come to the end of your term while you are not much older than you are today. Looking at a mortgage payment schedule reminds you that you are locked into paying a certain amount of money for a certain length of time – and that this can add up to an awful lot of money and seem like an awful lot of time. It adds seriousness to a situation that is quite serious enough already. In short, if you borrow to pay for a house you are making a large commitment. Seeing that commitment outlined in black and white is the final proof that you’re making a step you cannot easily take back.

A payment schedule will often detail how much of your monthly mortgage payment is going towards paying down the balance of your loan, and how much is paying off interest. It is worth getting a breakdown of these figures, because there are numerous deals available which allow you to cut down how much interest you pay every month, and allow you to save money overall. It is worth shopping around for the best deals, and having your current mortgage payment schedule to hand may well enable you to research where you might get a better deal. Some deals have special terms and conditions written into them which allow you to renegotiate your deal after a certain period of time – if you feel as though your principal owing is not reduced every month, you can check around to see what other offers you might get.

Consequences Of Lying On Mortgage Application

Lying On Mortgage Application

First Published: ADawnJournal.com December 31, 2009

Buying a new house, selling a house, or staying in a house all require some level of co-operation between yourself and others. Obviously this includes your family and others close to you, but it also requires collaboration between you and the lending institutions who furnish you with a mortgage as well as a range of others who may be able to help you if you are finding it difficult to maintain payments on your mortgage. Any homeowner, especially one in their first house, will be keen to do things correctly, so it is important to be aware of the importance of doing things in the right way. Maintaining communication with the relevant companies and organizations is the soundest way of doing this.

It has become the accepted wisdom that people lie on forms. Job applications and resumes, insurance claims and credit applications are all examples of forms where people have been known to be “economical with the truth”. While the practice of lying on a job application has come to be the norm and is even tacitly encouraged, it can still get you fired if it is a) serious enough and b) found out. Where finance is concerned, though, it can be a criminal matter if you knowingly withhold information or give false information. A policy of total disclosure – while it may cause you to have narrower options in the short term – will not only work better for your conscience, but it will make the long-term maintenance of the mortgage all the more comfortable.

The reason this is beneficial is that mortgage lenders offer deals on the basis of a large amount of information given to them. If you lie about your salary in order to have greater borrowing power, it could work. At the time, you will want it to work. However, after some time you will begin to feel the pinch of repayments and the financial situation can very swiftly spiral out of control, affecting not only your ability to make mortgage payments but also your financial position overall. Telling a “little white lie” on the mortgage insurance may help you lower the premium, but if you then try to claim on the insurance it could stop you receiving anything.

Aside from mortgage lenders there are other organizations who you would do well to bear in mind. If you are finding payments difficult to make, a debt counselling organization may well be the life-saver you are looking for. In this respect, a word of advice that may well be to your benefit: always look for a non-profit debt management or counselling company. Although the profitable organizations can generally afford a high advertising budget, remember that they are doing that with people’s money, money which has been sent for the purposes of debt management. By going with a non-profit company, more money goes towards paying down your debt, and helping you stay in your home. You may even be able to get the interest payments on your mortgage stopped for a period.

What is A Secured Credit Card?

Secured Credit Card

First Published: January 6, 2010 ADawnJournal.com

A secured Credit Card is a type of credit card for which you are required to deposit (meaning you are securing this money) cash money with the credit card issuer. This cash deposit becomes collateral and acts as your credit line or credit limit. If you have no credit history, want to rebuild credit history, or new to the country, a secured credit card can help you build a positive credit history.

Not all financial institutions offer secure credit cards. There may be many terms and conditions attached to secure credit. Do your research and make an informed, educated decision before obtaining any secure credit card. Here are some points to keep in mind:

·   Look out for higher interest rates and annual fees. Research and shop for the best deal you can get. Use these keyword phrases to research for deals: “secure credit card Canada”

·   Your deposit should earn interest the same way as a savings account or a GIC (Guaranteed Income Certificate).

·   Beware of secure credit card scams. Do not accept any offer from non- recognized brand names. Beware of any secure credit offer from a foreign country.

·   You can also try to apply for a retail store or gasoline company credit card.

·   Ask at your local bank if they can arrange a credit card for you. Often your local bank can offer you a credit card as part of a package deal.

One you have obtained a secured credit card, pay off your balance each month in full and that should start building a solid credit history for you. Once you are able to obtain a regular credit card, cancel your secure credit card as there is no point in keeping it anymore.