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
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
Before I get into the screens for finding appropriate stocks, we
need to talk about diversification.
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.