Your challenge is to begin building your portfolio. In the beginning, you will have only a few assets; remember, you must still apply the ten principles of building a successful portfolio. How do you apply these principles? 

 Diversification is critical to the process of building a successful portfolio. Single assets do not add much diversity to your portfolio. Most mutual funds hold multiple assets and are very diversified. Consider purchasing mutual funds as your first financial assets. What factors make a good mutual fund? We discussed factors such as low cost, tax efficiency, a low amount of un-invested cash, and a lack of manager style drift. Are there other factors that are important to you? What are your thoughts on index funds (exchange-traded funds)? What tools are available to help you choose candidates for your portfolio?

 This section is gives you the opportunity to choose your financial assets and to develop how you will invest. To choose your financial assets, read Learning Tool 7: Using Morningstar to Select Funds. It explains how you access the Morningstar database and how you can set up criteria to select the best mutual funds in your chosen asset classes. Using Learning Tool 7, go and select the mutual funds that you expect to best give you exposure to the asset classes you have chosen.

Determine which assets you should purchase to give you exposure to your desired asset classes. What are the minimum purchase amounts, management fees, 12b-1 fees (if any), loads (loads are sales charges and are generally not recommended), and other critical areas of the assets you are considering? Select a minimum of four assets that you will initially include in your investment portfolio.

 First, select an asset for your Emergency Fund. Find a liquid, no-load fund that has a low minimum balance requirement yet still gives you positive returns. It could be a money market mutual fund, intermediate-term bond fund, internet bank deposit, or other liquid investment.

 Second, select a core mutual fund. Select a fund that is inexpensive, has low turnover, and is tax efficient. This fund should also offer you exposure to your main equity market.

Third and fourth, select two funds which broaden and deepen your portfolio. Broaden your portfolio by adding new asset classes to your portfolio: these assets could include international stocks or bonds, emerging market stocks or bonds, or real estate investment trusts (REITS).

 To deepen your portfolio, add more companies to your core allocation or your main asset class. To further deepen your portfolio, you might include a U.S. small-capitalization fund or a mid-capitalization fund. You might also include a fund that offers exposure to all the stocks in the U.S. market, such as the Wilshire 5000 index, an index that includes most of the listed stocks in the United States.

 Once you have determined which assets you would like to include in your portfolio, print off the Snapshot page for each of your assets. This page includes information on pricing, size, fees, total return, and return versus benchmarks. These pages will be included in your financial plan.

 Once you have chosen your assets, use Teaching Tool 13: Investment Process Worksheet.  Open the spreadsheet, and determine which tab to use. If you own no financial assets or have only a few in your portfolio (less than 10 financial assets), use Tab “Inv. Process (4-10 Assets).” If you have more than 10 assets, use tab “Inv. Process (4-42 Assets).” Assets include stocks, bonds, mutual funds, savings, CDs, or other financial assets.

 Add your expected annual salary after to get out of school to cell G11. It will calculate a 3 to 6 month estimate. Looking at these ranges, type in your Emergency Fund goal in cell G14.   This is the amount you want to have first saved before you begin investing.

 Add in your asset classes consistent with your Phases in column D in the light green rows from Section III.B.1. Add the benchmarks in column D from the same section.

Once you have selected a minimum of four assets (one for each asset class), type in the name of the financial assets in the dark green section. 

 Finally, type in the percentage allocation in columns F and G, with F being the taxable accounts, and the G being retirement accounts. The sum of the taxable and retirement accounts should add to your total allocations as stated in Section III.B.1.

 Notice that Teaching Tool 13: Investment Process Worksheet automatically calculates your initial Target Portfolio Size goal, or your first goal for investing. It takes your amount of your Emergency Fund and divides this by the percentage you allocate to Bonds and Cash. For example, if your goal for your emergency fund was $20,000, and you had 25% allocated to Bonds and Cash, your initial Target Portfolio size would be $80,000, or $20,000 / .25. This is just one way of calculating your first goal for investing, but it is a good starting point. Once you achieve this first Target Portfolio Size, you will add an amount to this goal, say $100,000, and begin working on your targets again.