So you’re wondering how to start a stock portfolio? Well, don’t jump the gun just yet. From diversification to commissions to fees, there’s a lot to learn about investing before you dive in.
Starting a stock portfolio requires a detailed plan and thorough research. The best investors avoid acting on impulses and emotions, relying instead on reliable facts and long-term market trends.
So what are the dos and don’ts of stock market investing? And can you invest in the U.S. stock market if you aren’t rich?
Here are some pro tips to get you started.
1. Create a Financial Roadmap
The smartest investors get their start by creating a financial roadmap. This roadmap includes financial benchmarks for each age, and details each stage of the investment life cycle. It also includes the asset allocation of your portfolio, research about historical market returns, and realistic predictions about how your investments may perform.
Of course, this roadmap can (and should) change over time based on investment performance — but in any case, it’s essential to have a roadmap to act as your investing guide.
2. Avoid Disreputable Sources
A lot of people out there have a thing or two to say about investing. Are they all reputable sources? Certainly not.
One of the most crucial parts of learning how to start a stock portfolio includes parsing out the true experts from the imposters. Do everything you can to avoid these disreputable sources — their advice could make or break your success as an investor.
3. Rebalance Your Portfolio
Your initial asset allocation strategy should balance the chance of high returns with the amount of risk you’re willing to take on. While stocks may offer investment growth, bonds will provide stability over time.
Yet as your investments fluctuate in value, your portfolio may not reflect your initial asset allocation. At this point, it’s time to rebalance your portfolio to achieve that same desired percentage. Rebalancing your portfolio will help you better manage risk and improve your overall returns. Consider rebalancing every quarter, bi-annually or annually, based on your investment approach.
4. Consider Diversification
A diverse portfolio is one of the best safeguards against losses in a market downturn. By not putting all your eggs in one basket, you’ll have a better chance of protecting against risk.
There are many ways to diversify your portfolio: You could diversify by the company’s size, the industry, the type of investment, etc. Keep your emotions and biases in check and follow a buy-and-hold strategy that allows your investments to grow steadily over time.
5. Consider Setting Aside “Fun” Money
High-risk investments can be exciting and alluring; there’s no doubt about it. And once you’ve had a taste of high returns, you may be tempted to risk it all for more. But this could be a disastrous move — instead, consider settling aside some “fun” money within your portfolio.
Fun money should only make up a small percentage of your portfolio, used to invest in companies you love or have an emotional attachment to. Just keep in mind that you could potentially lose all of your investment, so it’s important to set strict limits on how much you’ll spend and when you’ll call it quits.
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