|
|
What is a stock market portfolio?
Introduction and Definition
A stock market portfolio is the group of investments that you hold.You can have stocks, bonds, mutual funds, etc. in your stock market portfolio.In fact most people find it most advantageous to have more than one type of investment in their stock market portfolio.Diversifying your stock market portfolio gives you the opportunity to benefit from different kinds of markets and risk options.
|
|
Building your Portfolio
As you decide what types of investments you are going to include in your portfolio, you should keep the following points in mind:
- How will I get the return on my investment that I want?
- How much risk am I comfortable with?
There are obviously other points under these two main questions to consider such as: Age (how much time you have for your investment to grow), investment amounts (capital amount), and your personality (if you are an already high strung type of a person, safer investments are your best option).
Risk Factors
The "Risk/Return Tradeoff" describes the pros and cons of risky investing.When your investment portfolio includes a lot of high risk stock, you have a greater potential for a high return.However, you also have greater potential to see more losses.With a lower risk stock market portfolio, your assets are safer but the likelihood of a large return is also very low.Every portion of the market carries a different level of risk with it.
For example, bonds generally less risky than stocks.Government bonds are less risky than company bonds.Certificates of deposit are even less risky than government bonds.As you continue down the list your investments become safer and safer, but also less and less lucrative.The best way to build your portfolio is to have some high risk investments and some low risk investments.This is referred to as diversifying your stock market portfolio.
Diversification
When you diversify your stock market portfolio you are finding a middle ground between the advantages and disadvantages of both ends of the investment spectrum.Most people feel more comfortable investing in high risk stock if they also have other investments in low risk bonds.There are conservative portfolios which err on the side of safe investments and aggressive portfolios that are longer term and higher risk.A conservative portfolio is more than %50 fixed income and securities.An aggressive portfolio consists more of equities or investments with a greater probability of capital growth.
In some cases your broker will choose the stocks that fit in to the portfolio type that you have chosen.If you are investing by creating your stock market portfolio on your own consider that every investment sectors have subcategories.For example, a bond can be a government bond or a company bond.Interest rates will differ along with dates of maturity.So, diversifying your portfolio can be quite tedious.
Investing Young
Young people who invest can take greater risks because they do not need to watch or protect their assets as closely as individuals reaching retirement do.An older person cannot risk loosing their assets when the market dips because they may need to access their investment in the near future.A younger person invests for retirement, knowing that he is not going to withdraw from his investment account for many years.Over a longer period of time the market maintains an upward trend, making long term investing much more lucrative than short term investing (granted the risks could be greater).
Rebalance
It is important that you revisit the volatility of your investments form time to time to ensure that your portfolio is still balanced.The nature of the stock market is to change.Make sure that you are making the appropriate adjustments.
Privacy Policy, Terms of Use