Why you should start an investment portfolio and practical steps to follow

In this week's Personal Finance slot, Galileo Capital's Warren Ingram hones in on how, and why you should start building your own investment portfolio.

While most people think it's a very complicated process you can build a portfolio in a relatively simple way, Ingram says.

That's if you make a few key decisions at the start.

RELATED: How to maximise your money when you can't control the markets

First of all, know why you're investing, Ingram emphasizes.

To "make money" is not a purpose, he says.

"Define your goal: retirement, education, financial freedom, or a deposit to buy your home."

The goal determines your time horizon, and your time horizon determines almost everything else, says Ingram.

Understand your risk tolerance:

Risk tolerance is not just how you feel about markets; it's how you behave when markets fall.
Ask yourself: if my portfolio dropped 30% tomorrow, would I sell? If the answer is yes, you're taking too much risk.
Ingram says you need to look at both your emotional tolerance AND your financial capacity to absorb losses.

Choose the right type of account:

Before picking a single investment, choose the most tax-efficient structure available to you, is Ingram's advice.
In South Africa, that means:
TFSA - up to R36,000/year. No tax on growth, dividends or withdrawals. Very good long-term investment.
RA/Provident Fund - if you're earning an income and want a tax deduction. Lock-up rules apply.
Discretionary account - For all your other goals.

Decide on your asset allocation:

Research shows this key investment decision drives over 90% of your long-term returns.

Asset classes are: equities (shares), bonds, property, cash. Each behaves differently.
Ensure you have a combination of local and global investments, Ingram says.

Invest consistently and leave the portfolio alone:

The biggest mistake investors make is stopping contributions when markets fall, says Ingram. That is exactly when you should be buying more.
Avoid checking your portfolio too often - instead, do a review every six months.

"Set up a debit order. Automate it. Remove the emotion.".

Scroll up to the audio player to hear Ingram's detailed advice