Building an Investment Portfolio: A Guide for Beginners

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Building an investment portfolio is not just about accumulating assets. It is a whole strategy for achieving financial freedom and long-term stability. In this article, we will delve into how to create a reliable and profitable portfolio, avoid mistakes, and misunderstandings.

Why is building an investment portfolio the first step towards financial freedom?

It is a set of assets that helps to distribute risks and increase investment returns. The essence of building an investment portfolio from scratch is to combine different instruments: stocks, bonds, funds, to balance profitability and risks.

What goals does an investor pursue?

It can be saving for retirement, buying real estate, or simply preserving money considering inflation. Short-term goals are up to 3 years (for example, saving for a vacation) and long-term goals are over 10 years (for example, creating a retirement fund). The difference in goals also determines the composition of the portfolio.

Risks and Returns

Any investment involves risks, and returns always depend on the level of potential losses. For example, stocks can yield 15% annual return but with high fluctuations, while bonds offer lower returns – around 7%, but with a more stable performance. When forming an investment portfolio, it is important to understand how risks relate to potential profits.

How to compose an investment portfolio?

The set of instruments may include various assets: stocks, bonds, funds, real estate. Stocks provide high growth potential but come with high risk. Bonds are considered more stable and provide predictable income. An example asset allocation for a novice investor:

60% in stocks: suitable for those willing to take risks for high potential returns. Includes large companies such as Sberbank and Gazprom.
30% in bonds: government securities, such as OFZs, provide stable and predictable income, protecting capital from significant losses.
10% in funds: investment funds, for example, VTB Capital or Sberbank Asset Management, allow for risk diversification and creating a diversified portfolio with minimal costs.

This allows for a balanced approach that minimizes risks and enhances the resilience of the financial arsenal.

How to choose stocks for investments?

The choice of securities depends on various factors: the financial condition of the company, its reputation, dividend payments. For beginners, organizations that consistently pay dividends are recommended: Gazprom, Sberbank, or Rostelecom. These stocks provide stable returns and are suitable for long-term investment.

How to choose bonds for investments?

Bonds are divided into government and corporate. It is better for novice investors to choose the former, such as OFZs (Federal Loan Bonds), which offer high reliability and relatively low risk. Corporate options, such as Sberbank bonds, may offer slightly higher profits but require careful assessment of potential losses.

Forming an investment portfolio in Russia: peculiarities

One of the popular tools is the IIS (Individual Investment Account), which allows for tax benefits. For example, an annual tax deduction of up to 52,000 rubles. This is a powerful incentive for novice investors to start building an investment portfolio in the country.

Investment Diversification: the key to stability

Investment diversification involves distributing capital among different assets to reduce risks. Imagine investing all your money in one company, and suddenly the enterprise collapses. The losses would be enormous. But if the funds are spread among IT, pharmaceutical, and raw material company stocks, even if one sector incurs losses, others can offset them.

Investment Risks: how to minimize losses?

Every investor faces risks, but diversification helps minimize them. For example, high reliability bonds, such as OFZs, protect capital during periods of instability, while stocks offer growth opportunities. A balanced approach helps minimize losses and maintain composure even during volatile periods.

Strategies for forming an investment portfolio

The process requires choosing a suitable methodology that aligns with goals and risk tolerance. Let’s explore two main approaches.

Active and Passive Portfolio Management

Active management involves constantly changing the portfolio composition, analyzing the market situation, and reacting quickly to changes. Passive management, on the other hand, is based on long-term strategies, such as buying ETFs and waiting for market growth. The second type is suitable for those who do not want to spend much time on trading, while active management requires deep knowledge and analysis.

Investment Funds: how to reduce risks?

Investment funds are another way to reduce risks. They allow combining capital from different investors and distributing it among a large number of assets. In the Russian market, options such as VTB Capital and Sberbank Asset Management are available, offering ready-made solutions for novice investors.

Mistakes to avoid

Many novice investors make mistakes related to lack of diversification or emotional asset purchases. For example, investing all money in one company’s stock in hopes of sharp growth often leads to significant losses. It is important to avoid emotional decisions and follow a pre-developed strategy to minimize losses.

Conclusion

Building an investment portfolio is an important step for anyone aiming for financial independence. Investments require discipline, knowledge, and patience, but they yield results that help achieve set goals. Start investing in yourself today, and financial freedom will become a reality in the future.

What is investment portfolio rebalancing and how to do it

Financial markets are constantly moving. Asset prices change, portfolio relationships distort. The initial structure no longer reflects the original goals. It is in these moments that the key management mechanism is activated – portfolio rebalancing. The process of adjusting assets maintains a balance between return and risk. Without regular review, the capital structure deviates from the planned trajectory, reducing the effectiveness of the strategy.

Essence and goals: what is portfolio rebalancing

Adjusting an investment portfolio involves redistributing shares between assets to restore target distribution parameters.

Why the need arises:

The growth of one group of assets increases its share above the norm.
The decrease in the value of another group leads to imbalance.
The current structure does not correspond to the changed risk level.

Portfolio rebalancing restores the initially embedded investment logic, reduces imbalances, maintains control over returns and volatility.

How to conduct portfolio rebalancing: action algorithm

The correct procedure starts not with emotions, but with numbers and strategic analysis. Basic steps:

Determine current asset allocations. Calculate how many percent each asset class occupies in the actual portfolio structure.
Compare with the target model. Check the deviation from the planned ratio: stocks, bonds, gold, funds, real estate, etc.
Calculate the necessary volume of redistribution. Determine how much to sell or buy to restore proportions.
Assess the market and choose the entry point. Consider liquidity, commissions, taxation.
Fix the structure and set a time reference for the next review

Portfolio rebalancing requires discipline and cold logic. Only such an approach ensures the preservation of the investment trajectory.

Frequency of portfolio rebalancing: how to choose the frequency

The choice of interval depends on the strategy, asset volatility, and investor’s goals. Frequent correction enhances control but increases costs. Rare correction reduces accuracy and increases risk.

Main formats:

Calendar rebalancing. Carried out at equal time intervals: quarterly, semi-annually, annually.
Threshold rebalancing. Assets are adjusted when the share deviates from the target by a certain percentage (e.g., 5–10%).

Situational portfolio rebalancing: unplanned intervention

Sometimes the market situation requires immediate intervention. The calendar and percentages lose relevance – it’s time for situational rebalancing.

Reasons for unplanned correction:

significant price changes in key assets;
change in investment goal (approaching deadline, change of strategy);
change in economic conditions (crisis, geopolitics);
increase in volatility or sharp decrease in returns.

Example: portfolio rebalancing in practice

Initial structure:

stocks — 60%;
bonds — 30%;
gold — 10%.

After 6 months:

stocks — 72% (significant growth);
bonds — 22%;
gold — 6%.

Actions:

sell some stocks, buy bonds and gold;
restore proportions to the original.

Portfolio rebalancing allows you to lock in profits from overheated assets and add capital to undervalued directions.

When reviewing an investment portfolio becomes mandatory

Some signals require immediate action. Delay results in lower returns or increased risk.

Reasons for review:

change in investor’s life stage (retirement, birth of a child);
change in investment horizon;
rise in interest rates, inflation, or decrease in global liquidity;
radical market trends;
sharp imbalance between expected and actual returns.

Types of assets involved in rebalancing

Key asset classes:

Stocks. Provide capital growth but are characterized by high volatility.
Bonds. Add stability and fixed income. Often act as a counterbalance.
Precious metals (gold, silver). Used as protection against inflation and currency instability.
Funds (ETFs, index funds). Allow diversifying investments in one click.
Real estate. Provides a real asset, stable rental income, low correlation with the stock market.
Cryptocurrencies. High potential returns and risk. Suitable only for a certain portion of the portfolio.
Cash and short-term instruments. Create a liquidity cushion and protect against losses in crisis phases.

Portfolio rebalancing works more efficiently with a clear understanding of the function of each asset type.

Mistakes in portfolio rebalancing and how to avoid them

Even with a clear investment plan, investors make actions that can undermine the effectiveness of the strategy. Mistakes occur either due to emotional pressure or technical incompetence. To ensure that portfolio rebalancing fulfills its tasks, it is necessary to eliminate typical miscalculations in advance:

Emotional decisions. Panic on a decline or euphoria at a peak provoke unfounded transactions. Instead of preserving the investment structure, the investor chases short-term returns. This disrupts risk management logic and reduces portfolio stability.
Ignoring commissions and taxes. Mechanical selling and buying of assets without calculating costs leads to a loss of part of the income. When rebalancing at short intervals, it is especially important to consider commissions, spreads, and capital gains tax.
Lack of strategy. Rebalancing without a clearly defined portfolio model turns into chaos. Without pre-selected proportions, an acceptable deviation range, and review rules, it is impossible to maintain a systematic approach.
Violation of investment logic. Often, after the share of a particular asset increases, the investor leaves it hoping for the trend to continue. This contradicts the principle of selling overvalued assets and buying undervalued ones. Violating logic disrupts goals and structure.

Connection with investment policy: not just correction, but a strategic tool

Financial goals require specific parameters: risk level, expected return, investment horizon. All this is formalized in the investment policy. Portfolio rebalancing acts as a tool that aligns practice with this document.

What ensures consistency:

maintaining the specified asset share depending on goals (accumulation, capitalization, passive income);
reducing the risk of deviations from the planned trajectory;
controlling volatility without losing potential returns.

If the portfolio structure deviates from the logic of the investment policy, the strategy loses its meaning. Only regular redistribution can maintain focus on the goal.

Impact on risk and return

Changing the asset structure directly affects portfolio behavior. Skewing towards stocks increases volatility, towards bonds – reduces returns. Maintaining balance allows controlling both.

Main impact mechanisms:

Redistribution reduces the risk of portfolio overheating;
Realizing profits protects against a collapse of overheated assets;
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August 26, 2025

Why an investor needs bonds: reasons to invest in securities

When it comes to investments, a person often thinks about stocks. But there is another important tool — bonds, which offer unique advantages. Why these securities deserve attention and what role they play in a well-thought-out investment portfolio? This article will tell you. You will learn why investors need bonds, how they work, and how to invest in them correctly.

What are bonds and why do investors need them

Bonds are debt securities on which the issuer undertakes to pay a fixed coupon and return the principal on the maturity date. Unlike stocks, they do not represent ownership in the company but guarantee a cash flow, often independent of market turbulence.

In practice, both corporations and governments use such instruments. For example, the issuance of OFZ bonds in the amount of 1 trillion rubles in 2023 allowed the Ministry of Finance to stabilize budgetary commitments. The corporate sector is also active: “Gazprom” and “Russian Railways” regularly place bonds ranging from 10 to 100 billion rubles.

These instruments are necessary for building a strategy in which the yield is known in advance, and the level of risk is controllable.

The advantages of bonds

Debt assets offer clear mathematics: coupon + principal = income. This approach removes speculative stress and makes the instrument ideal for long-term planning. Bond yields can reach 11–13% per annum with moderate risks — for example, in the high-yield bond segment.

The benefits of investing in bonds are particularly evident when compared to bank deposits. If a deposit is limited to a 13% rate and full dependence on the key rate, then an investment instrument can “surpass” this threshold through revaluation on the secondary market or bonuses from the issuer.

Also important: income from debt securities is not always subject to tax. For example, government securities with a fixed coupon are exempt from personal income tax if ownership conditions are met.

How to start investing in debt assets without mistakes

Investing in bonds for beginners requires precise selection. First of all, it is important to track three parameters: issuer rating, time to maturity, and coupon rate. The Russian market offers a wide range: from reliable OFZs to speculative high-yield bonds.

For a start, the following algorithm is suitable:

Evaluate goals — capital preservation, passive income, or diversification.
Study ratings from A and above.
Select instruments with a short term — up to 3 years to minimize volatility.
Check parameters: coupon, maturity date, early redemption conditions.

Why do investors need debt instruments at the beginning of their journey? To build a foundation and understand how the market works without sharp movements. It’s like learning to drive on automatic — simple, stable, without overload.

Building an investment portfolio

Fixed-income securities play a key role in asset allocation. In a typical balanced portfolio (for example, 60/40), bonds provide protection in a falling stock market. The reduction of the Central Bank’s rates increases their value, resulting in capital growth.

Building an investment portfolio without them is like constructing without a foundation. Even aggressive investors use them as stabilizers.

At the peak of the 2022 crisis, many private portfolios in Russia stayed afloat precisely because of government bonds. The decline in stocks was offset by the rising price of OFZ bonds maturing in 2024–2025.

Bonds are needed to balance risk and return. They should not only “offset” a decline but also provide a stable cash flow.

Yield, coupon, and terms

The yield of bonds depends on the type of security and the issuer. Government bonds are reliable but with a minimal rate: on average 7–9% per annum. Corporate bonds offer higher yields but require analysis. For example, bonds of “Sovcomflot” and “PhosAgro” yielded up to 12% with a BBB rating.

The coupon rate is a key parameter. It reflects the regular income paid every six months or quarterly. Debt instruments with amortization gradually repay the principal, reducing risks.

The maturity date also plays a role. Short-term bonds are less susceptible to fluctuations, while long-term bonds are more sensitive to rate changes. In 2024, valuable assets with maturity dates in 2026–2027 are of interest amid possible key rate cuts.

Risks, volatility, and how to deal with them

The financial market is not a chessboard with predictable moves but rather a dynamic stage where investing in securities requires an understanding not only of income but also of associated risks. They may appear more stable but are not free from fluctuations.

The main risks are:

Credit — the issuer may default. For example, in 2020, several bond issuers experienced technical defaults due to cash shortfalls.
Interest rate — when the key rate rises, the market revalues already issued securities, reducing their market value.
Liquidity — not all assets can be quickly sold at a fair price, especially among small issuers.

However, bond volatility is significantly lower than that of stocks. Government bond assets rarely lose more than 5–7% per year, even in unstable conditions. This makes them a cornerstone of strategies with low and moderate risk levels.

Why do investors need debt instruments in this context? For hedging, risk control, and maintaining a stable cash flow, especially during periods of high turbulence in stock markets.

Why investors should invest in bonds

A comparison with banking instruments reveals one of the key reasons. With deposit rates around 11%, quality debt instruments can yield up to 13–14% without the need to lock funds for a year or more.

Stocks offer growth potential but also the risk of a 20–30% downturn in a crisis. Unlike stocks, bonds repay the principal and pay the coupon, maintaining a cash flow regardless of market fluctuations.

Of course, the approach depends on goals. For passive income, stability, and predictability, they appear more reliable. Especially when selecting securities based on term, coupon type, and issuer.

Why do investors need bonds when they have other assets? To create a multi-layered investment system where each category performs its task — from capital protection to profit growth.

Examples of strategies

Professional portfolios include various types of debt instruments. For example, a model with 60% OFZs and 40% corporate bonds showed a yield of 10.4% per annum in 2023 with a maximum drawdown of 2.1%. For comparison: a portfolio with 100% stocks during the same period yielded 14% but with declines of up to -17% at certain stages.

An example of a balanced strategy:

40% — OFZs maturing by 2026;
30% — investment-grade corporate debt instruments (e.g., “Norilsk Nickel,” “Sibur”);
20% — high-coupon high-yield bonds (15–17%) from reliable issuers;
10% — cash in rubles or short-term securities for flexibility.

Such a portfolio yields 10–12% with minimal drawdown. Diversification by sectors and terms allows for risk mitigation and volatility control.

Why do investors need these securities as part of a strategy? To distribute the load, reduce drawdowns, and increase result predictability — especially during periods of economic instability.

Why investors need bonds: the main thing

Why do investors need bonds? To create a stable foundation for long-term growth. They are not a replacement for stocks, not an alternative to deposits, but the third axis of the investment triangle: stability, income, and control.

Debt assets are not a temporary refuge. They are a working tool used by anyone who thinks in terms of years, not minutes.

August 20, 2025