Your investment strategy will determine your investment portfolio. Your investment portfolio varies with your age, income streams and current goals. In the long term it should have a strong focus on passive income.
Your investment strategy should include a balance among the various investment options:
1. Money market investments- highly liquid. These help create an ability to fund short term needs without resorting to debt. They can fund school fees, local vacations. This ideally would suit money market investments. Ideally it should be just a small portion of your investment portfolio as the returns are generally low. This portion is critical as cash is king. Sometimes if there is no meaningful investment option after harvesting one can park their cash into this pot. This gives the investor flexibility when good investment opportunities suddenly arise. However be careful not to keep too much cash or near cash investments as these will result in opportunity costs.
2 Stock Exchange investments- highly-moderately liquid. These allow for rapid deployment of funds and partial harvesting when ever near cash resources are exhausted. They are highly volatile but generally with good returns.
3 Real Estate investments- generally low liquidity (at times highly liquid in Zimbabwe) but very good store of value. Generally most wealthy people store their wealth within these investment category.
4 Business that generate cash are a great way to leverage other people’s time and labour. It is however important to ensure that as soon as possible this business does not totally depend on your own sweat. It should be built on a self-sustaining system.
An ideal portfolio should:
- Be hedged against inflation
- Be hedged against the falling currency
- Well diversified (asset class)
- Have a short pay back period
- Be liquid & in high demand for easy sale
Although there is much talk about asset allocation and asset rebalancing, it goes without saying that for a serious investor the bigger portion of one’s investment portfolio will be biased towards real estate. Ensure that you stabilize your investments with solid assets in the real estate sector.