The Globe and Mail

Gail Bebee is the author of No Hype – The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com. This is part seven of a 12-part series for people that are new to investing on their own.

Understanding the main attributes of the basic building blocks of investing is a key step on the road to investing success. You may be surprised to learn that there are really only a few such building blocks or asset classes, groups of investments which have similar risk characteristics and behave similarly in the marketplace. The main classes are considered to be stocks, bonds and cash/cash equivalents, which were all discussed earlier in this series. I would add a fourth, real estate. Other classes include hedge funds, commodities, options, foreign exchange, gold and collectibles.

How you put these building blocks together to create a portfolio is a critical determinant of your investing success. In this article, I'll examine the process of portfolio building and offer some sample portfolios.

The first step of portfolio building is to decide on your personal investing goals, short term and long term, and your desired timelines to achieve these goals. Whether it's saving for your first house, your kids' education, your retirement or your rainy day fund, you should decide on, and preferably commit to paper or electronic file, your personal financial goals with a timeline for each.

If you want to test out different scenarios to meet a goal such as saving to buy a house, there are calculators available online to help. For example, CIBC Investor's Edge goal funding calculator lets you experiment with the goal amount, return rates, marginal tax rate, inflation rates, amount already invested and years until money is needed. You can test different retirement savings and post-retirement withdrawal scenarios using The Globe and Mail's retirement planner.

The next step is to work out your personal risk profile which will help you decide the weighting of asset classes in your portfolio. This means deciding things like the amount of money you are willing to lose in the short term in pursuit of long-term profits. While this sounds difficult, several discount broker websites feature education and tools to help you. Credential Direct has a portfolio planner calculator; RBC Direct Investing offers an asset mix calculator while iTrade offers an asset allocation optimizer.