Fund Investing from Scratch: A 5-Step Guide to Building a Portfolio

Getting started with investing can seem complicated at first. To make the right choice among different fund types, risk levels, and market conditions, you first need to define your goals and your investment approach.

Instead of investing in different assets one by one, mutual funds let you join a diversified portfolio managed by professionals. So which steps should you follow when building a fund portfolio that suits you?

Define your investment goal

Before building a portfolio, clarify the purpose of your investment. You may want to put your savings to work in the short term, build a source for future expenses, or invest for a long-term goal. You can start by asking yourself these questions:

• What do I expect from this investment?
• When might I need my savings?
• Will I be able to invest regularly?
• How do I approach short-term fluctuations?

Your goal directly affects the fund types you choose and the overall structure of your portfolio.

Get to know your risk profile

Every investor’s perception of risk and tolerance for fluctuations is different. Some investors look for a more stable structure, while others may prefer to take more risk for higher return potential.

When assessing your risk profile, you should consider not only your return expectations but also your investment horizon and how you respond to potential losses in value.

Fund risk values are usually shown on a scale of 1 to 7. Lower values indicate more limited fluctuation, while higher values indicate a greater likelihood of price movement. However, the risk value alone is not enough to make a decision; the fund’s strategy and the assets it invests in should also be reviewed.

Get to know the fund types

Mutual funds fall into different categories according to the assets they emphasize in their portfolios and the strategies they follow.

Money market funds

They invest in short-term, highly liquid instruments. They may be preferred by investors who want to put their savings to work in the short term.

Debt instruments funds

They hold public or private sector debt instruments in their portfolios. Interest rate movements and maturity structure can affect the fund’s performance.

Build a balanced portfolio

Considering different fund types together when building your portfolio can help you strike a healthier balance between risk and return. Regular review is an integral part of the investment process.

Review the process

Considering your goals, your risk profile, and the funds’ strategies together when making investment decisions provides a more consistent approach over the long term.