Portfolio Construction: Building a Winning Strategy
Master the art of portfolio construction with proven strategies for asset allocation, diversification, and risk management.
Strategic Portfolio Construction
Building a well-constructed portfolio is crucial for long-term investment success. This guide covers modern portfolio theory, asset allocation, and diversification strategies.
Modern Portfolio Theory
Developed by Harry Markowitz, MPT shows how to construct portfolios that maximize expected return for a given level of risk.
Asset Allocation Strategies
Strategic Asset Allocation: Long-term approach based on risk tolerance and goals.
Tactical Asset Allocation: Short-term adjustments to take advantage of market opportunities.
Dynamic Asset Allocation: Continuous adjustment based on market conditions.
Age-Based Allocation Rules
Traditional rule: Subtract your age from 100 to determine stock allocation percentage.
Modern approach: Subtract your age from 110-120 due to longer life expectancy.
Geographic Diversification
- Domestic markets (60-70%)
- International developed markets (20-30%)
- Emerging markets (5-10%)
Sector Diversification
Spread investments across:
- Technology
- Healthcare
- Financial Services
- Consumer Goods
- Energy
- Utilities
- Real Estate
Rebalancing Your Portfolio
Review and rebalance quarterly or when allocations drift more than 5% from targets.