Questions you may wish to ask yourself in relation to this exercise include the following:
- Are you an income or value investor, or a mix of the two? How much income do you need each year from your portfolio to maintain your living standards?
- How much cash do you wish to retain on deposit for emergency access, bearing in mind this will earn little or no interest but is likely to be crisis resistant?
- Do you have a goal in mind in terms of returns (e.g. 5% per annum)? How will you structure your portfolio to achieve this?
- Ultimately what do you want to do with your wealth after a 10 year period? (e. g. spend it, retire on it, invest in a business, retain your investments or bequest it?)
- Are there any specific investments you wish to consider or disregard? (e. g. ethical investments, investments in particular activities or geographic locations?)
- How far do you wish to use collective investments such as unit trust or property funds, other than direct investments in shares and bonds?
- If the value of your invested capital fell by say 30%, what would you do? (e. g. sell your holdings or wait for them to recover, or completely change your portfolio?) What are the implications of this for the short and long-term value of the portfolio?
Remember there are no clear-cut right and wrong answers to this exercise. You are attempting to undertake an exercise that professional financial planners undertake regularly as well as many investors on their own behalf. However you are attempting to demonstrate a good understanding of personal investing and financial markets, and to clearly show how investments and markets are affected by events such as the2007-08 financial crisis.