◆Actually creating a portfolio
In this article, we will look at how to put together a portfolio.
When putting together a portfolio, the first step is to determine the general framework of which areas you will invest in.
Naturally, you will consider multiple areas, but if you already have a portfolio in place, you should review it as a whole based on the results you have achieved so far.
Next, determine the risk/return allocation for each. When considering the allocation, consider both the investments and the portfolio.
There are three levels of risk/return: high, middle, and low, so consider how to allocate them.
A good rule of thumb for allocation is to have high risk/high return products in a 10% to 20% ratio, middle risk/middle return in a 50% to 60% ratio, and low risk/low return in a 30% to 40% ratio.
The next step is to examine and categorize the investment products and assets you are considering into which level they fall.
For example, just because a real estate or mutual fund is assigned to the middle does not mean that it actually is as well. Please note that depending on the nature of the product, it may be classified as high or low instead of middle.
Also, high risk products should never exceed 20% of your total assets. This is because the more high-risk products you have, the more risk you are taking.
＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝＝
◆Prepare for the three risks that can prevent asset building
We have discussed the main principles of building a portfolio.
When considering risk diversification, we would like you to pay special attention to three types of risk: liquidity risk, currency risk, and country risk.
Liquidity risk is the inability to withdraw money freely. There are some assets that you have invested in, but the funds are locked up for a long period of time or, like real estate, cannot be easily converted into cash.
Since portfolios need to be reviewed periodically, it is advisable to avoid products that cannot be withdrawn for more than 15 years if at all possible.
Many people are now realizing the risk of currency fluctuation.
When the value of the Japanese yen declines, prices will rise because of the higher cost of imported goods. When the yen declines, the value of your assets declines by that amount.
When building assets over the long term, holding a portion of your assets in foreign currencies is a good way to diversify risk. The U.S. dollar, the world’s reserve currency, is a relatively safe currency.
Country risk refers to the risk that the economy will be disrupted by political instability or war in the country in which you invest, which will have a negative impact on your asset management.
We hope you understand that diversification is still essential.