Investment Portfolio : What you need to know

February 8, 2022
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Craig Fischer
Posted in Finance
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The stock market portfolio, as its name indicates, designates all the securities on which an investor has invested on the financial market. A portfolio can include securities (stocks and bonds) as well as derivatives. They don’t have to be complicated. To build a simple and effective portfolio you can use funds or even a robo-advisor. But here is what you need to know.

What is a stock portfolio?

A portfolio refers to all financial investments held by an individual or professional investor. A stock market portfolio can be made up of shares, bonds, investment funds or even derivatives.

The term “portfolio” dates back to the days when financial stocks were paper documents that investors kept carefully in a portfolio. Currently, a stock portfolio is a list of stocks that you can track in real time, on your stock broker’s website or an app. It is a combination of several distinct financial assets that an investor owns. The composition and management of a stock portfolio requires the consideration of certain factors: the investor’s risk taking and growth objectives.

How an investor decides to design their portfolio will depend on many personal factors, including investment objectives, the amount of risk they are willing to take, and how long they wish to invest. Spreading the investment across different asset classes can provide diversification to your portfolio and can be beneficial for portfolio growth.

Tracking the performance of individual assets will help you determine if your portfolio is meeting your expectations. If you want to make changes, you can buy and sell the components whenever you want.

How does a stock portfolio work

To build a stock market portfolio, you need to open a securities account. It is important to note that in the stock market, the market evolves constantly. It is therefore important to define your investor profile:

the risk you are ready to take
the duration of your investment (a few days or a few years?)
the budget
the time you can devote to it

In the world of finance, there are two main strategies to build a portfolio: diversification or specialization.

Diversification

In the case of the diversification strategy, it is not necessary to own a large number of securities. In fact, if you want to effectively monitor your portfolio and keep it under control, the recommended size for your portfolio is 8 securities. In addition, diversification helps to reduce fees, since the more securities an investor owns, the higher the management and transaction fees. The idea behind diversification is that a decline in one stock can be offset by a rise in another.

Specialization

The specialization strategy allows investors to choose to invest in a specific type of stock. For example, if your area of focus is real estate, you can commit to different stocks in that area.

How to build an ideal investment portfolio?

It is important to specify that there is no miracle solution in the construction of a stock market portfolio. Everything depends on the objectives to be reached and on the investor’s profile.

First of all, in order to compose correctly a stock exchange portfolio, it is important to observe. To begin with, it is necessary to observe “blank” the evolution of the indexes and of some stocks in order not to be tempted to disperse.

Then, it is good to select some securities and analyze them. It is then possible to reduce the selection to three or four stocks that have caught your attention and monitor their behavior without touching them for the moment. Indeed, some stocks are more speculative than others, more or less volatile and therefore more or less risky.

Finally, simply choose the stocks in your portfolio.

Succeed with your investment portfolio

Limit the costs

Transaction fees and management fees can measurably diminish the performance of your portfolio. To counter this, simply choose the right brokers.

Use ETFs

ETFs (Exchanged Traded Funds) are investment funds listed on the stock exchange. Also called trackers, they have the particularity of tracking and replicating stock market indices. They allow you to meet two challenges in managing your portfolio: diversification and cost reduction.

ETFs allow you to diversify a portfolio without having to pay considerable brokerage fees.

The Market-Signals website, for example, offers several ETF portfolios depending on the risk level.

Don’t neglect obligations

Many investors tend to favor stocks. However, bonds also have advantages:

bonds are less volatile than stocks;
they have a different behavior than stocks: they will act as a shock absorber in case of a crash;
choosing and investing in bonds is more complex than investing in stocks (but there are bond ETFs).