When deciding what kind of underlying assets to invest, one may be bombarded with hundreds of choices.
Although there are many ways to evaluate an asset, it is just impractical to evaluate each and every one of them.
It is like having to chose who you want to marry.
Of course you will have a set of criteria that your future husband or wife should have; the same goes when you want to invest your money.
The first task for you is to decide whether you are a growth investor or a value investor.
The distinct difference between both investing styles is that growth investor will invest with a company that is well established and gives steady growth in their investment; blue chip stocks.
On the other hand, value investor will invest in an underlying asset that has a very low intrinsic value; new entrants.
The most commonly used type of deciding what type of portfolio is top- down approach.
Top- down approach focuses on broad macroeconomic factors.
The portfolio is constructed by first determining the asset allocation, followed by country allocation and security selection.
In short, step one is to analyse what kind of industry that you prefer, next is to determine which country the industry is making the most potential and lastly is to choose the options that you have within the securities.
After listing down some of the securities that you are comfortable with, you will need to make a fundamental, technical and statistical analyses.
This process alone can take up a lot of time but it was all worth it.
With all these facts and figures, you can avoid one of the greatest mistakes an investor can make, the 'park and pray' method; parking your money in an underlying asset, and praying that it will grow.
Although some people may experience gains when they adopt this method, however they are just lucky.
If you do not know how to invest your money in equities, you can invest your money in unit trust and bonds.
At least, these kinds of asset do not require you to go through a lot of tedious selection process.