The strategy I would use to build my portfolio is that of minimizing the level of risk with the investment. This should assist me to achieve higher returns in the long-term. My fund allocation is going to be on the following basis.
40% of the funds would be invested in value stocks that are from large-cap cluster. Large-cap stocks provide a great degree of stability. It involves companies that are large and have a solid reputation among consumers. They are therefore less likely to come across economic forces that could render them insolvent (Investopedia, 2017).
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25% of the funds would be invested in mid-cap companies that have a moderate level of risk. Mid-cap stocks would offer a greater share price appreciation potential and are less risky compared to the small-cap stocks. They also offer a greater potential of transformation and growth compared to the large-cap stocks.
15% of the funds will be invested to small-cap companies which are growth stocks. This level of investing will mean that carries a high level of risk. The main benefit is that there would be an expected high return. The high risks would be counterbalanced by the investment in large-cap and mid-cap companies that are less risky.
15% of the funds will be invested in government bonds. The risks are usually low and it would provide returns that are almost guaranteed. This will offer as an excellent diversifier to my portfolio in case other assets do not perform quite well (Gennaioli et al., 2014).
The remaining 5% will be invested in a savings account like that of an emergency fund. Investing in such liquid securities would be able to cater for emergency situations if any arises.
References
Investopedia . (2017). Investopedia.com . What are common advantages of investing in large cap stocks Retrieved 15 March 2018, from https://www.investopedia.com/ask/answers/041015/what-are-common-advantages-investing-large-cap-stocks.asp
Gennaioli, N., Martin, A., & Rossi, S. (2014). Banks, government bonds, and default: What do the data say? (No. 14-120). International Monetary Fund.
