How to Build a Strong Investment Portfolio in 2022

If you are new to the stock market, you may often wonder what you should be investing in.

Today we will take a look at how to set up your own portfolio. It is crucial to understand how to build an investment portfolio that will perform well in all market conditions over the long term.

If you are a long-term investor, understanding how to allocate your money to different types of assets is critical. It will ensure you will be profitable when you are ready to take out your money years later.

These are the six different allocations of a strong investment portfolio.

1. ETFs

Starting off with the most passive part of the portfolio, I like to allocate 20% to ETFs. This could be one ETF or multiple. These funds are essentially a basket of securities that track an underlying asset.

The reason I like to incorporate ETFs into my portfolio is that they are almost guaranteed to go up in the long term. Historically, they have had an average rate of return of 8–10% a year.

An exchange-traded fund (ETF) is useful because it diversifies your portfolio among many different stocks. Say I buy an exchange-traded fund like VTI, which means all the money I contributed towards that etf is distributed among all the holdings within VTI.

2. Dividend

The next part of the portfolio is my absolute favorite. I like to allocate 30% to dividend aristocrat stocks.

A dividend is when companies decide to share a portion of the profits they make with their investors. Dividends are distributed to shareholders either monthly, quarterly, semi-annually, or annually.

Dividend aristocrats are well-established companies that have been increasing their dividend every single year for a minimum of 25 consecutive years.

That means that those companies continued to pay and increase how much they gave their investors even during recessions and economic declines. That gives me such relief to know that a company will still have my back even during hard times, which will make me invest stress-free.

Dividend investing is a great way to invest passively. You can invest money to grow over time by simply holding well-established companies.

3. Growth

Moving on to the growth section of this portfolio, I like to allocate 30% to growth stocks.

These are companies that are spending their profits on research and development to further expand and grow their companies. Therefore, they are expected to grow at a larger rate of return than the average return of the market.

Growth stocks are great because they help your portfolio appreciate in value quicker than dividend stocks or ETFs do.

With growth companies, I like to focus on mid-cap to large-cap companies. This means that the company should have a market cap of $2 billion-$200 billion.

4. Commodities

Next, we have commodities. In this investment class, I usually allocate between 5 and 10%.

Commodities are an investment class that is either a raw resource or an agricultural product. Examples of commodities include gold, silver, oil, etc. Usually, demand for these kinds of commodities increases as inflation rises and the economy enters a recession.

You can invest in commodities by either buying the actual resource or investing in a mutual fund or ETF.

5. Cryptocurrency

Cryptocurrency is known for making millionaires out of tiny investments. However, it is very volatile. I try to limit my allocation to cryptocurrency to 10%.

I believe that Bitcoin is one of the coins that will continue to grow over the next 10 years. The potential returns from bitcoin can be drastic. It is a good way to diversify your portfolio and expose yourself to some life-changing returns.

Bitcoin is a decentralized asset that is essentially considered to be "digital gold." Experts consider Bitcoin to be a robust defensive asset, much like gold.

You can also diversify into other coins.

6. Cash

I personally like to keep 5% of my portfolio in cash. This is good practice because it gives you the opportunity to purchase when the stock market goes on sale.

You can increase this allocation to 10% or drop it down to 0% if you like. I just do not like having too much cash not invested. But that is just a personal preference.

Bottom Line

When planning your portfolio for 2022, make sure you have a plan for how you will allocate your money before you start investing blindly.

This will prove useful because you will know which companies to buy and how much to invest in each one. Then the best strategy to adopt is to dollar-cost average into these positions over the long term for guaranteed success.

Remember, time in the market is always much more profitable than timing the market.