Building a Stock Portfolio
Building a successful stock portfolio is not magic. It is the culmination of a series of thoughtful actions that help to ensure that you are placing your money where it will most easily grow. Finding the right investments may take some research and time, but you will be rewarded with increasing returns for your effort.
Assess Your Risk Level
Investing involves a certain degree of risk. Each person’s risk level is different than another’s. You may be highly risk adverse, while someone else might be willing to roll the dice for higher returns. Different types of funds entail different levels of risk. Your age may have a significant effect on the investments you choose. Younger investors have the time to wait out a bad investment in hopes of a better return in following years. Older people do not have the time to wait for a long-term investment to turn around. They may also need access to their money sooner. A number of formulas are available to help you determine how much of your money to allocate in each type of investment.
Allocate Your Assets
Experts recommend that you only invest money that will not be needed for at least the next year. This measure will allow your stock portfolio to overcome the usual ups and downs of the market without having to accept a loss. Then, you must allocate the money within investment categories, such as
- Stocks – Stocks are shares in individual companies. Although many stocks have a solid record of continuous growth, the stock of other companies may be subject to severe fluctuations in the market.
- Bonds – Bonds generally produce solid growth, at a lower rate of return than individual stocks.
- Mutual funds – Mutual funds are collections of types of stock. This grouping of stocks allows the risk to be spread over a greater number of stocks to ensure that some increase in return is always likely to occur.
- ETFs – Exchange traded funds, often called ETFs, are stocks that track a certain index, such as the S & P 500 or the Dow Jones. These groups of stock closely track the performance of these indices. They are similar to an index fund, but cost less to trade.
Re-balancing Your Portfolio
Once you have allocated the money in your stock portfolio, you will have to maintain a good balance of investments to increase returns. Most people who invest also monitor their stocks’ performance on a regular basis. This scrutiny can be done more easily with computer software, such as StockMarketEye, which can help you find the best entry points for purchasing new stock.
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