{"id":66488,"date":"2022-05-05T22:12:17","date_gmt":"2022-05-06T02:12:17","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=66488"},"modified":"2022-05-17T22:31:07","modified_gmt":"2022-05-18T02:31:07","slug":"how-to-build-an-investment-portfolio","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/how-to-build-an-investment-portfolio\/","title":{"rendered":"How to Build an Investment Portfolio Like Billionaires Do"},"content":{"rendered":"\n<p>Are you wondering how to build an investment portfolio? Do you want to mitigate your losses while constantly gaining money?<\/p>\n\n\n\n<p>According to Tony Robbins in his book <em>Money: Master the Game<\/em>, building an investment portfolio is key to becoming content with your financial situation. While it&#8217;s a long process, Robbins says that being patient and investing wisely can increase your chances of a successful and wealthy outcome.<\/p>\n\n\n\n<p>Keep reading for an in-depth guide to creating an investment portfolio that will make you rich.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-building-an-investment-portfolio\">Building an Investment Portfolio<\/h2>\n\n\n\n<p>To know how to build an investment portfolio, you need to learn from those who\u2019ve proven their skill\u2014in this case, America\u2019s top billionaire investors.&nbsp;<strong>After meeting with many top investors, Robbins advocates for building an investment portfolio that mimics the market and minimizes losses while growing steadily over time.<\/strong> This implements three principles: Play the long game, <a href=\"https:\/\/www.shortform.com\/blog\/asset-diversification-2\/\">diversify your assets<\/a>, and mitigate your downside.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Play the Long Game<\/h3>\n\n\n\n<p><strong>The most reliable way to <a href=\"https:\/\/www.shortform.com\/blog\/building-wealth\/\">build wealth<\/a> is to hold your investments for a long period of time.<\/strong> The best way to do this is with an index fund, a collection of stocks that mimics an overall market index, such as the S&amp;P 500. In other words, owning an index fund means you own stock in every company on that index.&nbsp;<\/p>\n\n\n\n<p>Since the market averages growth over the long term, holding an index fund nets you returns that mimic the growth of that index. If you own an S&amp;P 500 index fund and the S&amp;P 500 grows, your investments grow too.<\/p>\n\n\n\n<p>Robbins says that you don\u2019t need to take big risks to have big success. While index funds grow modestly over time, they offer <em>consistent<\/em> growth, and many experts consider them to be invaluable assets.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Diversify Your Assets<\/h3>\n\n\n\n<p>It\u2019s important to properly allocate your assets\u2014for example, by holding multiple <a href=\"https:\/\/www.shortform.com\/blog\/types-of-bonds-in-finance\/\">types of bonds<\/a> or multiple index funds.&nbsp;<\/p>\n\n\n\n<p><strong>The overriding goal of <a href=\"https:\/\/www.shortform.com\/blog\/asset-diversification\/\">diversifying your assets<\/a> is to build a portfolio that can withstand both good and bad market conditions<\/strong>: If one asset plummets, the rest buffer the loss. The market always \u201creverts to the mean\u201d\u2014booms and busts are temporary, while average growth is the general rule. If you allocate intelligently, you can mitigate your losses in bad times and ensure substantial gains in good times. <\/p>\n\n\n\n<p><strong>The key to proper asset allocation is to continually rebalance your portfolio. This means maintaining the same proportional divisions that you first start your buckets (your financial divisions) with\u2014for example, a 50% conservative, 30% aggressive, and 10% \u201cfor fun\u201d allocation.<\/strong>&nbsp;<\/p>\n\n\n\n<p>These proportions will go out of balance when the buckets rise or fall according to their assets\u2019 performance. When this happens, reallocate funds until you\u2019ve re-established the original proportion. For example, your aggressive bucket might have a fantastic month, returning enough to become 40% of your funds. To rebalance, you can move money from that aggressive bucket into the other two until the proportions are correct.<\/p>\n\n\n\n<p>This matters because long-term investing requires you to set up a strategy and commit to it. If you get excited by short-term gains and fail to rebalance, you\u2019ll lose that much more money when the markets inevitably fall again, and all your hard work designing your investment portfolio will be thrown out the window.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Mitigate Your Downside<\/h3>\n\n\n\n<p>The final step in learning how to build your investment portfolio is to mitigate your downside. <strong>In investing, losses are more impactful than gains<\/strong>: If a $10,000 investment drops 25% to $7,500, you\u2019ll need to gain 34% ($2,550) to break even again. So above all else, avoid losing money as best as you can. Robbins offers these tactics:<\/p>\n\n\n\n<p><strong>Tactic #1: Find opportunities for asymmetric risk\/reward.<\/strong> This means that you only risk your money if the chance of gains is higher than the chance of losses. For example, you might use an annuity that ensures your principle is up to 100% while guaranteeing modest returns. That way, you can only gain money and you\u2019re protected against the downside.<\/p>\n\n\n\n<p>(Shortform note: In <a href=\"https:\/\/shortform.com\/app\/book\/skin-in-the-game\"><em>Skin In the Game<\/em><\/a>, <a href=\"https:\/\/www.shortform.com\/blog\/nassim-nicholas-taleb\/\">Nassim Nicholas Taleb<\/a> argues that <a href=\"https:\/\/shortform.com\/app\/book\/skin-in-the-game\/chapter-3\">pursuing wealth while minimizing losses is actually unethical<\/a>. Because you have nothing to lose if you fail, you\u2019re free to pursue your self-interest without thought of the consequences of your actions. If investing is a zero-sum game as Robbins says, then every dollar you earn risk-free is a dollar someone else loses. Taleb argues that we respect those who gain wealth through risky endeavors, such as running a tech startup, more than those who gain wealth via risk-free means.)<\/p>\n\n\n\n<p><strong>Tactic #2: Get tax efficient.<\/strong> Several different accounts\u2014most notably Roth IRAs and Roth 401(k)s\u2014allow you to pay tax upfront so that you need not pay tax when you withdraw funds later on. In addition, Robbins recommends specialized life insurance plans\u2014such as the TIAA-CREF\u2014that allow you to invest through a tax-free insurance \u201cwrapper,\u201d so that your compounding avoids tax and accelerates much more quickly. (Shortform note: In 2019, the Teachers Insurance and Annuity Association <a href=\"https:\/\/www.investopedia.com\/tiaa-life-insurance-review-5205584\">stopped offering the special life insurance plans<\/a> recommended by Robbins.)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Are you wondering how to build an investment portfolio? Do you want to mitigate your losses while constantly gaining money? According to Tony Robbins in his book Money: Master the Game, building an investment portfolio is key to becoming content with your financial situation. While it&#8217;s a long process, Robbins says that being patient and investing wisely can increase your chances of a successful and wealthy outcome. Keep reading for an in-depth guide to creating an investment portfolio that will make you rich.<\/p>\n","protected":false},"author":14,"featured_media":10920,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,31,43],"tags":[617],"class_list":["post-66488","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-money","category-self-improvement","tag-money-master-the-game","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How to Build an Investment Portfolio Like Billionaires Do - Shortform Books<\/title>\n<meta name=\"description\" content=\"An investment portfolio can generate more income for you in the long run. 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