Just as the alchemists of the past strived to create the Philosophers’ stone — a mythical substance capable of turning metals into gold — the investors of the present are trying to figure out a universal formula for building a successful investment portfolio. While both the Philosopher’s stone and the Philosophers’ Investment Portfolio are non-existent, people still dream of a one-size-fits-all investment recipe — with maximum returns and minimum risk and maintenance.
But there is still good news — building a reliable and perspective portfolio is easy! Moreover, everyone can do this — even if you are not versed in math and have never invested before.
Today, we will make up a basic investment portfolio from the assets available on the IQ Option platform.
Allocation is the distribution of assets in a portfolio, i.e., a mix of stocks, ETFs, currencies, and commodities.
The allocation parameters depend on your willingness to take risks and the time horizon to the goal. For example, if you are a father of four with a small income, your ability to take risks is lower than that of a young single heir to a fortune. So, the percentage of assets in your basket may vary depending on your life situation.
Professional traders’ portfolio usually includes 40-50% of stocks. The IQ Option platform offers shares of over 170 companies — see which type of them will suit your needs.
Large-cap stocks are stocks of companies with a market capitalization above $10 billion. These are big companies, so their stocks grow more slowly and so are less volatile — and less risky.
Large-cap stocks are considered a strong portfolio diversification instrument. For example, here are a few companies’ stocks that have been bringing dividends for 50 year in a row, such as Pfizer, PepsiCo, Altria Group, etc.
If you learned the lessons of 2020, consider investing in IT companies’ stocks. This is one of a few industries that actually benefited from the pandemic, and the trend is definitely here to stay. For example, Amazon, PayPal, Zoom, and Spotify stocks went big last year, and have good chances to keep growing further.
If you are completely new to trading, it’s a good idea to start with something you know. For example, you can invest in the shares of the bank you use, your favorite video games, online services, etc. Some of the IQ Option traders’ faves are Activision Blizzard, Netflix, McDonald’s, etc.
Mid-cap and small-cap stocks
Mid-cap stocks are issued by companies with a market capitalization between $2 billion and $10 billion, small-cap stocks — less than $2 billion. These equities have a higher risk due to their lower liquidity, but they also tend to grow faster. The Italian FC Juventus is an example of promising small-cap companies, while Marks & Spencer, easyJet, and Cronos Group Inc. are considered mid-cap.
For traders’ convenience, some brokers offer ready-made themed stock collections. For example, you can invest in the best-performing IT companies or mimic Warren Buffett’s investment habits and trade the Oracle of Omaha’s favorite stocks.
If you don’t feel confident about building a custom investment portfolio, you can go with exchange traded funds (ETFs).
ETF is a type of trading instrument that is a mix of securities: stocks, commodities, currencies, etc. It combines risky and less risky assets, and it can be bought and sold without the need to physically own it, just like regular stocks.
Some of the most-traded ETFs of the IQ Option platform are S&P 500 ETF, UltraShort S&P500, and Energy SPDR.
The Forex market is the most volatile market, which means higher risks and higher profit potential. National currencies are traded in pairs: when you place an order (for example, EUR/USD), you buy the base currency (the one that comes first in the pair — in our case, EUR) and sell the quote currency (USD). Exchange rates constantly fluctuate, creating numerous speculative opportunities.
Pay attention to some of the currencies that had a good dynamic in 2020: EUR/USD, GBP/USD, and AUD/USD.
For traders’ convenience, IQ Option regularly updates the collection of Top Gainers and Top Losers among the currency pairs. This way, you can see which currencies are gaining and losing value right now, and use this information to make trading decisions. Remember that currencies can be traded in both directions, so one can benefit from ‘winners’ and ‘losers’ alike.
Learn more about how to trade currency pairs here.
Aside from fiat currencies, you can trade digital currencies at IQ Option. Cryptocurrencies are much more unpredictable and volatile, but at the same time, can be incredibly profitable.
The most popular cryptocurrency is, of course, Bitcoin. But there are more: for example, Ethereum is very big at the moment, as well as Ripple and Litecoin.
During the time of extreme volatility, metals such as gold and silver are believed to be the ‘safe haven’ assets. They don’t experience severe price fluctuations almost ever, and their price movements are generally more predictable. Having around 10% of your capital invested in silver or gold is a good idea if you are willing to trade with lower risks.
Investing in the energy sector also provides nice portfolio diversification opportunities. For example, the crude oil market brings handsome returns when it comes to short-term swing trades and long-term strategies due to its volatility that has increased over the past years.
The investment portfolio is like a grocery shopping trolley: everyone would fill it up with different goods depending on their taste, eating habits, and budget. It is impossible to bring on a universal portfolio model. Still, there are general recommendations: look at the risks, time frames, and your own financial capabilities and choose the corresponding assets.
Don’t forget to review your portfolio every once in a while to make sure you’re maintaining your allocation plan and are still on track to your long-term investment goals.