Financial education

Diversification 101: building a balanced portfolio

The importance of diversifying investments.

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In the magical world of personal finance, the skill of being able to build a well-balanced portfolio is one of the key strategies for achieving long-term financial success.

What is a portfolio? Essentially a portfolio is like a “collection” of investments owned by an individual or entity. It’s basically where you keep all your stocks, bonds, mutual funds, real estate or any other type of asset classes. The act of “diversification” is the act and the process of spreading investments across different assets. Diversification is essential, and it’s considered one of the fundamental principles in portfolio construction. The core of this strategy is to help investors to mitigate and minimise risks while maximising potential returns.

If you have never looked into investing before, words like stock, bonds and portfolios may seem daunting, especially if you happen to have limited resources and limited time. This being said, building a diversified portfolio is not only reserved for the wealthy. Individuals with minimal budgets and an already busy life can get started on the path to financial growth by adopting some effective yet simple investing strategies.

Getting started: understanding your financial goals

Before starting to build your portfolio, it’s very important to ground yourself, define your financial goals, and decide what you want your achievements to look like. Why are you building a portfolio? Are you looking to secure your future and save up and retire? Or are you looking to buy a house, go back to school or fund your education? Having clear goals and objectives is helpful to guide your trip and your investments, and will help you to decide what your risk tolerance looks like. Once you’ve established your goals, you can begin investing. I’ve gathered some tips and practical steps for beginners, including those with very low or no budget at all.

Education is always key

Knowledge is key in everything you do, have done or will do. Never overestimate yourself, overconfidence and greed are not a good match when it comes to “betting” your money on an investment or NFTs. Take your time, and once you think you’ve taken enough, take some more! Educate yourself about the different kinds of asset classes, risk profiles, and different investment strategies. The Internet and Google are your friends, you’ll find infinite online resources, books and many financial courses available. Having an understanding of the basics will empower you to make informed decisions and tackle the world of finance with ease.

Start small with low-cost investments

No shame in being broke, it is what it is. If you’re starting with a minimal budget the key is to start as small as possible. Many platforms will allow you to begin with a very low initial investment, sometimes as low as €10. Some low-cost investment options you might want to take into consideration are mutual funds, ETFs (exchange-traded funds) and index funds. These are options easy for beginners, and provide instant diversification by tracking a specific market index, thus spreading your investment across multiple assets.

Explore investment platforms

You might want to look into investment platforms. Many websites and online brokers are now offering trading at lower prices, allowing people like you to invest without having to worry about pricey transaction fees. It’s great news for people with limited budgets, as it lowers the barrier to entry.

Good news then! Beewise might be an interesting option for you then. Beewise offers five different options for you to look into when moving the first steps towards building your portfolio.

Smart Cities
The Smart Cities portfolio aims for medium to long-term capital growth by actively managing a diverse mix of equity and fixed income funds. Its main priorities are investments in companies advancing smart and sustainable urban solutions, enhancing life through digital innovations.

Breakthrough Healthcare
The Healthcare portfolio is all about medium to long-term capital growth. If you want to do so, you’ll be able to invest in medical and biotech companies, emphasising emerging fields like genome sequencing and editing. Additionally, the portfolio anticipates significant influence from demographic shifts and an aging population on the evolving digital health trend.

The Environment portfolio is a mix of equity and fixed income assets, it is again aimed at long-term capital growth rather than a “get rich quick” approach. It emphasises investments in companies within renewable energy, electric transportation, circular economy, and decarbonization sectors, focusing on companies that address environmental challenges with innovation and sustainable resource management.

The Technology portfolio too aims at medium to long-term capital growth (you might have noticed a pattern so far). If you choose this one, you’ll find yourself investing in the technology and communications sectors, focusing on companies providing advanced IT and digital services.

Future Generations
The Future Generations, as the other portfolios, aims for medium to long-term capital growth. It emphasises equity investments in companies poised to benefit from emerging markets’ development and the rise of their middle class, which is expected to drive global consumption growth in the upcoming decades.

Build emergency savings

Before downloading one of these apps and diving right into investments, make sure you have an emergency savings fund set up and running. Financial advisors usually advise people to save up the equivalent of three to six month’s worth of living expenses, as a safety net. Having this cushion will allow you to navigate unexpected expenses without having to withdraw from your investments prematurely.

Disclaimer: This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Laura Ghiretti
March 2024