It’s important to track performance of your segments, rebalance and re-align to maintain a reliable, steady, and responsible portfolio that can deliver on quality results. This is done through discipline, ignoring the noise and headline news, and really focusing in on results against your personal benchmark, purpose, and strategy.

There are many ways to build your investment portfolio – you want to ensure you own the appropriate mix of investments to meet your long-term financial goals. However, you need to first outline your goals, priorities and needs. Secondly, you need to assess your required and desired return and your ability and willingness to take on risk that is required to achieve your goals. And thirdly, you would outline your Total Asset Mix that would include Cash and Equivalents, Fixed Income and Equities.

Why you need a framework?

We have seen a number of events in our lifetimes where the market has crashed, the economy has sunk, we have been in recessions, however, each event has passed with the economy rebounding. Even today, as we emerge from the pandemic, the economy stays strong, so much so that we are said to be in a state of hyper-inflation. These events, that come and go, cause people to panic and get nervous causing them to react hastily and divest their portfolios at potentially inopportune times. An investment framework allows you to control your emotions and take advantage of the volatility in the financial markets. And that is why a framework is so important, it gives us a set of behaviours and characteristics to control our emotions and stay committed to our investment goals and plan in both stable and volatile times.

Your investing framework

If you are looking to build your own investment portfolio, then as mentioned before, start with your goals and priorities. Why are you investing and what is the purpose of these funds? When will you need to use these funds? Then you will determine your return requirements – meaning, how much does your investment portfolio need to grow by on an annual basis for you to reach your goals within the intended timeframe – and match those requirements against your risk tolerance. Ensure you can emotionally handle the swings in the market. Once all this in place, you now need an investing framework to build your portfolio, i.e., choose your investments.

There are many frameworks investors use around the world, and they are standard strategies that are then ‘tweaked’ to match the personal style of the investor themselves. Some who invest in stocks of companies use fundamental research on a firm to determine if they want to purchase stocks of that organization. Fundamental analysis focuses on getting to know a company inside and out and understanding some of the factors that may affect its stock price. Others may use technical analysis as they believe in evaluating investments and identifying trading opportunities in price trends and patterns seen on charts.

There are others who have a completely different framework – some are known as Value Investors: Value investing involves picking stocks that appear to be trading for less than their intrinsic or book value. On the flip side, there are Growth Investors: invest in companies that exhibit signs of above-average growth, even if the share price appears expensive per various financial metrics.

There are others as well…any of these resonate with you?

Your advisor

The good news is that if the above seems complicated, you can meet with a financial advisor and they can help you with this. Better yet, get a better understanding on your own ideas and feelings towards your investment framework and then ask your advisor what their investment framework is! Learning about others’ investment frameworks, especially from professionals provides a lot of education all from a simple conversation.

Fund manager

If you and your advisor have decided that mutual funds are best for your portfolio, the investment framework discussion still applies. Every professional mutual fund manager also has an investment framework. Their framework is even more disciplined as it has to be documented, signed off and reviewed by regulatory bodies. As you work with your advisor to build your portfolio of mutual funds, ask your advisor what the fund manager’s investment framework is, as that may also help in deciding your portfolio allocations.