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PORTFOLIO CONSTRUCTION | MODULE 1

Understanding portfolio construction

Start the portfolio construction course with module 1, which helps define portfolio construction and details how to get started with establishing an investment process.

What is portfolio construction?
Portfolio construction is the process of understanding how different asset classes, funds and weightings impact each other, their performance and risk and how decisions ladder up to an investor’s objectives.
Bulldozer

In Latin America, a common trend is to focus on individual,
high-performing funds

Remember to focus on more than high-performing funds

However, by not thinking about how individual funds work together, the portfolio can be exposed to unintended risks. Adopting a portfolio construction process allows for a holistic approach to investing, which can improve the possibility for better investment outcomes.

3 action items to get started

Checklist
Start by setting objectives
Individual investors and financial professionals can work together to create a plan around short- and
long-term goals.
Risk
Then, understand risk tolerance
Financial professionals should understand how comfortable a client is with changes in investment returns and be intentional about the risks being taken.
Reduce cost arrow
Lastly, minimize portfolio costs
Taxes and fees can be a drag on portfolio returns. Account for these early in the planning process in order to maximize the value of the portfolio’s investments.

Think differently

Taking a few extra steps to understand client objectives, how much risk they are willing to take on to achieve their goals and understanding how costs impact returns is foundational and will help financial professionals properly build out an optimized investment process.

This concludes the first module of the portfolio construction course. Read the next module, which takes a deep dive into the portfolio construction process, to continue the course.