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What is an investment portfolio? Who are they meant for and why are they needed?

An investment portfolio is a basket of different asset classes, structured through an individual account or a combination of accounts with a distinctive goal in mind. These can be assets such as stocks, bonds, real estate, alternative investments, commodities, and even cash. They can be invested through securities such as mutual funds, ETFs, individual stocks and bonds, REITs, or private equity. They can be held in retirement accounts, limited partnerships, or individual accounts. They are created with one or several unique goals in mind that are put in place for the benefit of an individual, family, or institution. They are meant for any person who is looking to reach financial goals outside your traditional bank savings account or cash under the mattress concept. They are needed because they can significantly make a difference on whether you achieve your goals or fail at financial success. 

How do investment portfolios work? What are the tax impactors?

Investment portfolios work by investing in an array of different strategies, using assets such as stocks, bonds, real estate, alternative investments, or cash. There can be several strategies in place, such as preservation of capital, income, growth, or even a combination of certain strategies, among many others. Tax impactors can be several depending on if you are investing your portfolio through an IRA or another retirement account, or through a taxable account. A growth strategy with a 20-year horizon inside an IRA may have very different tax implications vs. that same strategy inside a taxable account. It is important to assess your goals and strategies with the trusted help of a financial advisor and accountant. 

What are the pros and cons of investment portfolios for regular investors?

The pros can be many, the main one being achieving your goals set at the beginning of starting an investment portfolio. For example, this can be retiring with the nest egg you always dreamed of with a growth strategy, preserving an inheritance from your grandparents that you want to pass on to your kids via a capital strategy, or producing cash flow for you to live on via an income strategy. The cons are not achieving your goals and objectives due to poor strategy implementation, misunderstood tax planning, or setting unrealistic expectations with your financial advisor. Therefore, sitting down with a trusted financial advisor and accountant is critical for the success of an investment portfolio. 

What are your best tips for investors using portfolios to build wealth?

First, make sure your goals and objectives are clearly stated to your financial advisor at the implementation stage. Be open, honest, and transparent. Second, make sure you choose a portfolio that invests in the proper combination of growth and income, a balanced and diversified long-term approach with a disciplined and proven strategy. Third, make sure you have a trusted financial advisor by your side who can be your partner throughout different lifecycles, as we all know that life can sometimes be a rollercoaster. Finally, reassess your goals and objectives at least once a year to make sure that you are on track to building and preserving the wealth you have worked so hard to attain.

Adrian Devoto
Portfolio Manager at Intercontinental Wealth Advisors