Creating a domestic stock portfolio is a traditional way to go about investing, as the markets have become highly international in nature. Nonetheless, it can be done and still accomplish some diversity so investors can earn expected returns and protect against severe loss. Before creating a domestic stock portfolio, an investor should determine how much risk he is willing to take and the types of returns he is seeking.
One way to build a domestic stock portfolio is to diversify exposure based on the size of investments. An entire fund devoted to large companies is likely to introduce stability, but an investor might be left wanting for returns. As a result, balancing the portfolio between some smaller capitalization stocks, which are companies valued at less than $1 billion, and industry leaders will help offset some risk but still deliver potentially higher profits.
Investors can be opportunistic and incorporate companies that are undervalued, or appear to be priced less than they are worth, into a domestic portfolio. This is called value investing and when successful the market values of these securities eventually rise and investors profit. Value investing hunts inexpensive stocks while growth investing adds high-priced stocks that appear to be on a growth trajectory. Identifying companies that are expected to continue to deliver increasing profits and revenues and adding these companies to a domestic stock portfolio alongside value stocks provides diversification.
Investors can create a domestic stock portfolio composed of niche stocks, or companies that all trade in the same sector. For instance, some institutional investors including charities and religious organizations limit investments to socially responsible domestic stocks. Carving out a niche is not unusual and allows investors to buy stocks that they may have certain knowledge about. Niche investing may produce a portfolio with fewer stocks than a typical investment portfolio given the parameters this strategy requires.
Income-paying stocks can be especially attractive in an investment portfolio that consists solely of domestic equities. Such a fund is lacking the reliable income that is generated from stable bond investments, and, as a result, the addition of dividend-paying stocks could provide safety in an equity portfolio. Even the most diversified investors could profit from dividend-paying stocks, especially during uncertain economic times, according to a 2012 article on the MSN Money website.
Video of the Day
- Finance image by Kathy Burns-Millyard from Fotolia.com