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Build Your Portfolio

Step 1: Set specific goals

Before creating a portfolio, think about why you're investing in the first place. The more specific each goal is, the better you can decide which investments may be right for you. Start by answering these questions:

  • How much money will you need? Remember to account for inflation when planning future expenses.
  • How much time do you have? When will you need the money? How long will it need to last? As a rule, goals with longer timeframes require more aggressive investments.
  • How much risk can you tolerate? All investments involve risk. The key is to assume enough risk to grow your portfolio, but not so much that you can't tolerate the market fluctuations.
Step 2: Allocate your assets

Asset allocation is simply the process of deciding how much money to put into each of the three main investment categories:

  • Stocks to grow your principal and beat inflation over time
  • Bonds to generate income and offset stock market risks
  • Cash to meet short-term needs and provide portfolio stability

Asset allocation seeks to avoid the risk of owning just one type of investment. Because different investments don't always move in the same direction, you have the potential to offset any losses from one holding with gains from others.

Your exact allocations depend on your unique needs. For example, if you have the time and temperament to ride out market fluctuations, a stock-heavy portfolio may make sense. As you grow older or more conservative, you may want to gradually increase bond and cash positions.

Step 3: Diversify across investment styles

After allocating assets into each investment category, the next step is to diversify across their various sub-categories, known as "investment styles."

For example, your stock allocations can include growth and value companies of different sizes, market sectors and countries. Bond styles range from government to corporate to municipal, short-term to long-term, investment grade to high yield, U.S. to international.

Each of these investment styles tends to react differently to market and economic conditions. When some are rising, others may be falling. As a result, a broadly diversified portfolio is likely to fluctuate less than any one style alone.

Step 4: Select your investments

Instead of building a portfolio with individual stocks, bonds and cash securities, many people find it easier to simply invest in mutual funds.

Mutual funds are managed by professionals and diversified across more securities than you can likely afford to research, buy and manage on your own. It isn't unusual for a single fund to include hundreds of different holdings so that no one security has too much influence on your total returns.

There are two ways to create your portfolio with J.P. Morgan Funds

  • Custom-tailor your own investment mix by selecting individual funds and deciding how much to invest in each; or
  • Choose an asset allocation fund that makes these decisions for you. From a single convenient investment, you receive a broadly diversified portfolio of J.P. Morgan Funds representing every major market worldwide.
Step 5: Follow your plan over the long term

Many people make the mistake of switching investments or completely abandoning their portfolio during normal market swings. In most cases, a better approach is to simply buy and hold the same sound investments over time. If your personal circumstances or the financial markets don't change dramatically, then neither should your fund mix.

Consider meeting with a financial advisor at least once a year to review your portfolio. Together, you can decide if your current investments are still appropriate or if any adjustments are needed.

The information above is not intended to provide and should not be relied on for accounting, legal and tax advice or investment recommendations. The views and strategies described may not be suitable to all readers. Please contact your financial professional or tax advisor for additional information.

Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss.

IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.