There’s a common misconception that investment portfolios are for the wealthy when the reality is that anyone in Canada with a little bit of extra funds can build a strong portfolio.

Doing so may very well benefit them in the short and long term.

If you’re a beginning investor in Canada, building a portfolio might strike you as a confusing and daunting task, regardless of your bank account balance. But it’s very doable.

Here are four steps to building a promising investment portfolio.

What is An Investment Portfolio?

Before we get into the three steps to building a promising investment portfolio, however, let’s look at what an investment portfolio is. 

Simply put, an investment portfolio is a collection of assets that you invest in. These days, investment portfolios aren’t physical documents but digital collections of assets that belong to you, though it may help to think of your portfolio as a physical artifact that you can flip through.

There are three chief asset classes: fixed-income, cash and equivalents, and shareholders’ equity. Three of the most common types of investments are bonds, stocks, and mutual funds.

Another popular asset in Canada—especially for beginning investors—is a hard asset, for instance, physical gold, specifically gold bullion.

Gold bullion means gold bars, coins, and ingots that are officially recognized as 99.5% pure and kept as reserves at banks and financial institutions in Canada.

Gold bullion is an especially popular investment option for beginning investors looking to build and diversify their financial portfolio because it’s considered a safe haven asset: an asset whose value typically holds or even increases during volatile financial times.

To buy gold in Canada, all you need to do is visit a gold bullion seller or a bank, though gold bullion sellers often offer better deals. 

#1 Identify Your Financial Goals

Identifying your financial goals means figuring out what you want financially in the short and long term.

Your financial goals will typically depend on your financial situation. If you’re a middle-aged parent with a mortgage, you may want to pay off your mortgage, pay for your kids’ post-secondary education, and save for retirement.

If you’re in your twenties, renting an apartment, and working an entry-level job, you may want to chip away at your student debt while still having enough money to cover your rent and go out with friends from time to time.

#2 Assess Your Risk Tolerance

Yes, building an investment portfolio is risky. So too, however, is putting your funds into a traditional savings account.

That’s because, like storing hard cash under your mattress, squirrelling away funds in a traditional bank account means your funds likely won’t keep pace with inflation. What you can buy now with your funds, you likely won’t be able to buy with the same funds in the future. In other words, when you squirrel away your money in a traditional savings account, chances are your money will decrease in value over time.

Putting your money into an investment portfolio, by contrast, is a way for your money to potentially combat inflation. When you put your money into an investment portfolio, it might keep pace with—or even outpace—inflation, meaning the value of your money now will equal or surpass the value of your money in the future. If you want to improve your portfolio check out Motley Fool vs. Morning Star to understand the pros and cons of investing. 

Would you like your portfolio to be conservative or aggressive? Your strategy will determine what sort of assets you’ll want to invest in, and how much you’re willing to invest.

By allocating your assets wisely, you can potentially balance risks with potential rewards.

#3 Understand Your Investment Horizon

Your investment horizon means how long you’re willing to wait to reap your potential rewards.

Again, your investment horizon will likely depend on your financial situation.

If you’re a middle-aged parent who wants to pay off your mortgage, pay for your kid’s or kids’ post-secondary education, and save up for retirement, you’ll probably want to have a large investment horizon.

If, by contrast, you’re a recent post-secondary graduate who wants to chip away at your student loans while having enough money to pay your rent, your investment horizon will likely be smaller.

As a rule of thumb, the longer your investment time horizon, the larger your ability to take risks.

#4 Rebalance Your Investment Portfolio

An investment portfolio is not fixed. Over time, some of your investments may rise in value while others may decrease. To keep your portfolio balanced, you need to rebalance the proportions of your investments consistently.

You can do so on your own, with the help of a financial adviser, or by using a robo-adviser, among other options. For beginning investors, seeking help from a financial adviser is generally a good idea.