How to Build a Diversified Core Portfolio

1. Establish your personal goals

Define what you're trying to achieve with your investment — do you have one investment goal, or several? Are you saving for a home, tuition, retirement, or something else entirely?

Once you know what you're trying to achieve, determine whether your investment will be over the course of a few years or a few decades. Then figure out when you'll begin using the assets you expect to accumulate, and how long you hope to continue making those withdrawals.

After you've defined your goal and time horizon, you need to assess your risk tolerance. This means making sure the level of risk you're comfortable living with is aligned with the returns you expect or seek.

Finally, take a careful look at your available assets, income and expenses. You need to know how much you want to initially fund your investment with, and how much you'll be able to regularly contribute thereafter. Only then will you be in a position to gauge whether your investment goal is realistic, or whether you need to reconsider any of the variables.

2. Set your portfolio strategy

Now that you know where you want to go financially, you need to figure out how you're going to get there. Having a savings account or owning your home are important to the big picture, but you may also want to consider additional investment products if you expect to achieve all your investment goals.

Keep in mind that investing isn't a random exercise. You want to assemble an investment portfolio that's right for you. To do this, you need an asset allocation strategy. It's the road map you'll use to help you diversify your overall investment across an array of asset classes.

An allocation strategy shouldn't include putting all your eggs in one basket. Different asset classes don't always behave the same in different types of markets, and a properly diversified portfolio will provide you with a greater probability of achieving your investment goals without exposing you to more risk than you're comfortable with.

3. Execute your strategy

Once you know what your financial goals are and have a plan to reach them, you need to begin taking steps to arrive at your destination. Research — that which you do yourself combined with the research you can rely on for a second opinion — will help you identify the asset classes, sub-asset classes and security types you should have in your portfolio.

Research will help you answer difficult questions. For example, if you think you should have exposure to precious metals in your portfolio, would it be better to buy a mining stock, or an Exchange Traded Fund (ETF) that tracks the metal in the commodities markets? Should you buy stocks in individual companies, through mutual funds, ETFs, or any other investment instruments? What about bonds? Should you buy Treasuries, Agencies, Corporates or Municipals? And no matter what you invest in, you always want to get the best value in terms of acquisition costs and fees and tax treatment.

4. Analyze your performance

Your investment journey doesn't end once you've built your portfolio. You need to regularly reevaluate your portfolio's actual performance — compare your current asset positions against the target allocations defined in your asset allocation strategy. If you need help, we can show you how.

Over time, the value of individual assets in your portfolio is likely to change. These fluctuations can lead your portfolio's asset allocation mix to drift out of balance from your target allocation model. To bring your portfolio back to its original mix, you need to periodically rebalance it by selling securities that have increased in value and buying those securities that have decreased in value. It doesn't take much time, and our tools and services make it simple.

Ultimately, the analysis of your portfolio requires you to focus on what has worked and what can be done better. Then it takes discipline to periodically rebalance your portfolio — it's the best way to keep your asset allocation aligned with your goals.