Creating a stock portfolio is a little like juggling. You’ll need several different stocks to diversify your portfolio, a sense of balance between your stocks and some good timing when it comes to throwing another stock into the mix and taking one out. For many, buying and selling stocks is a full-time job. However, if you don’t have all day to devote to your stocks, you’ll only need to remember a few basics to create and adequately monitor your portfolio.
Write down your goals in concrete terms to find stocks that best match your goals. The National Endowment for Financial Education recommends marrying time-specific, realistic goals to your investment plan. This will help you pick stocks that best meet your objectives. While large-company stocks may be best for 5 to 10-year goals, you may be able to invest more aggressively with small or international stocks if you have a longer time until you need the money.
List stocks that you know and admire. Financial guru Peter Lynch made a fortune purchasing shares in companies he knew and understood. Categorize these stocks up according to size so that you’re able to match them to your goals. Although Peter Lynch didn’t invest in every stock on his watch list, creating this list helped him avoid researching thousands of companies that wouldn’t meet his goals.
Research the stocks on your watch list. You’ll need to grasp some key stock measurements to research effectively. First, focus on price-to-earnings ratios, known as PE ratios. When comparing companies that compete against each other, a company with a lower PE ratio has a lower relative price than its competitors with higher PE’s. Second, read recent news about company developments and management changes. Third, look up stock charts online to gain an understanding of recent price trends. These three tasks should give you a better insight into each stock and help you decide which is best to pursue by purchasing shares.
Create and fund a brokerage account. If the idea of tracking shares and making buy or sell decisions alone is compelling, look into discount or online brokerage accounts for your money. These firms you save you money in trading costs. If you can’t imagine researching and investing alone, a full-service broker might better suit your needs because licensed investment professionals can help you choose suitable stocks for your portfolio. Before settling on a broker, use the Financial Industry Regulatory Authority BrokerCheck website to review his record and experience (see Resources).
Decide whether to use a market or limit order to purchase your shares. Market orders purchase your shares of stock immediately, ensuring you’ll own them. Limit orders help you avoid overpaying for a stock because you set a target price below the current trading level. Once the price lowers to your target the order is issued and you purchase the shares.
Monitor your watch list and purchased stocks. Stay abreast of news on the stocks in your portfolio by setting alerts with your broker or on popular Internet stock research sites. You’ll want to focus on company earnings, management changes and product developments so you’ll understand what’s happening to your stocks. If you’re worried about huge dips in the price of your shares, you may set a stop order to automatically sell the stock if the price plummets to a predetermined point.
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