If You're Jumping Into the Market, You Need a Portfolio Plan

Before getting involved in the stock market, you should make sure that you have a sound portfolio plan in place. A portfolio plan will help govern each investment decision that you make. Here are a few things to consider about developing a successful portfolio plan.

Portfolio Plan

In developing a portfolio plan, you will need to make sure that you do a thorough amount of research first. You should look at different portfolio management strategies and try to determine which one suits you best. If you are working with a financial broker, it might be a good idea to sit down with them and have them help you come up with a plan. Once you start investing, you should look at every individual investment decision as it relates to your portfolio plan. Do not choose individual investments solely on their own merit. You should choose them based upon how they complement the rest of your portfolio.

Diversification

Part of every good portfolio plan will include some level of diversification. In order to be truly diversify, many experts argue that you would need more than 100 stocks. If you do not have the ability to purchase this many stocks, you should still do your best to diversify as much as you can. Do not put all of your investment funds into a single stock. You should look at stocks from many different industries and sectors in order to develop your portfolio.

Investment Selection

You should also decide how you want to approach selecting your individual investments. When purchasing stocks, you could take one of several approaches. For example, many investors choose to purchase only growth stocks. With this type of plan, you are looking for companies that have shown signs of rapid growth. You might look to see if they have posted above average gains in consecutive quarters. Typically, this happens before a company grows rapidly.

Another type of stock that you might want to look for is a value stock. Many investors look for value stocks in order to take advantage of an inefficient market. When looking for value stocks, you are searching for stocks that you believe to be undervalued. When you purchase these stocks, eventually the price of the stock will start trading at what it should be again. At that point, you will be able to realize a return on your investment.

Yet another class of investors choose to get involved with dividend stocks. When a stock pays a dividends to their shareholders, this represents another source of income for you. Many investors successfully employ an investment strategy that focuses solely on dividend stocks. If you reinvest the dividends when you receive them, you can build your portfolio even faster.

Investment Strategy

You also need to decide what type of strategy you will utilize with these stocks. For example, you need to decide whether you plan on buying and holding the stocks or whether you will try to time the market. Both strategies have shown some merit in certain situations.

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