You've owned mutual funds for years. And maybe your company's stock. Or a few shares you inherited from Aunt Bernice.
Now you want to own stocks. A portfolio of them. To really invest. But you're not sitting on a fortune, and you don't have time to do the scads of research you think it takes.
Fear not. There are ways to get started building a portfolio that don't require huge amounts of time or money. Just take the time to answer a few questions and set a few goals. In no time you'll have a portfolio that you can monitor as much or as little as you like.
Define your goals
Your first step is to decide on your investment objectives. Here are three common categories. Each implies a different level of risk.
Capital appreciation. Your primary goal is to grow the value of your portfolio. A caution: The best capital appreciation prospects are usually the most volatile, and hence, the riskiest stocks.
Balance of capital appreciation and capital preservation. You want to grow your capital but without undue risk.
Capital preservation: You want to achieve reasonable returns but priority No. 1 is preserving your existing capital. This is the lowest risk category.
Pick your portfolio objectives with your risk tolerance in mind. If you're likely to lose sleep when one of your stocks drops 10%, avoid the pure capital appreciation portfolios. Conversely, these portfolios might be your bag if you crave excitement and want something to talk about with your friends and co-workers. Some investors put their "serious" money into low-risk portfolios, but allocate a small amount of "fun" money for speculative portfolios.
Do you have the time?
Some portfolios require monitoring on a daily basis, while others require only occasional checks. I'll specify a recommended time commitment for each portfolio that I'm going to describe using these guidelines.
- High. Check on stocks daily, or at least, weekly.
- Medium. Check on stocks weekly or, at a minimum, monthly.
- Low. Check on portfolio only occasionally.
Spread your bets
All selection strategies, no matter how good, usually come up with at least one or two clunkers. With only a few stocks, one bad apple will sink your returns. At a minimum, each portfolio should contain at least 10 stocks, and 15 would be better.
Whether that's practical depends on how much you're planning to invest.
Certain stockbrokers, such as ShareBuilder, provide cost-effective solutions for investors who want to establish multistock portfolios with relatively small investments.
But even with ShareBuilder, it would cost $20 in fees to set up a 10- to 20-stock portfolio. While that doesn't sound like much, it amounts to 5% of your total if you're investing $400. As a practical matter, I suggest a minimum $800 initial investment to keep costs down to a reasonable level.