Investing is an essential part of building long-term wealth, but for many, the process can seem daunting and complex. The stock market’s volatility often makes headlines, striking fear into the hearts of novice investors. However, diversifying your investment portfolio can help mitigate risks and set you up for success. Here’s a step-by-step guide to building a solid investment portfolio that can weather market storms and set you on the path to achieving your financial goals.

First, understand your risk tolerance. This is a key factor in determining how you should allocate your investments. As a rule of thumb, younger investors can afford to take on more risk as they have time on their side to ride out market downturns, while those closer to retirement may want to adopt a more conservative strategy to protect their assets. Risk tolerance is highly individual, so consider your comfort level with market fluctuations and how much volatility you can tolerate before making any investment decisions.

Next, determine your investment goals. Are you saving for a down payment on a house, funding your child’s education, or building a retirement nest egg? Each goal will have different time horizons and required rates of return. Understanding your goals will help you create a plan and choose the right investment vehicles to achieve them. This may include stocks, bonds, mutual funds, exchange-traded funds (ETFs), or a combination thereof.

A well-diversified portfolio is key to managing risk. Diversification means owning a variety of assets that react differently to market conditions. This way, if one type of asset or industry takes a hit, your portfolio won’t suffer too much damage. Diversification can be achieved by investing in different companies, industries, and geographic regions, as well as by allocating your investments across various asset classes.