Assembling your first stock portfolio is an accomplishment for which you can be proud. It is, however, only a first step on the path to creating wealth. The next crucial step involves thinking about and creating a plan for managing and controlling your portfolio so it produces positive results. Time, information and an investment strategy that suits your risk-tolerance level are necessary to successfully manage and control a stock portfolio that works for you.
Commit to putting in the time and energy it will take to successfully manage and control your own stock portfolio. Although even more time may be necessary when you are in the initial stages of learning, understand that managing a stock portfolio on your own will always take some time. Set up a weekly schedule that allows for information gathering. Focus not only on gathering information about the stock market, but also about the U.S. and world economies. Include time for analyzing and making adjustments to your portfolio when they become necessary and for researching and tracking stocks you may want to purchase in the future.
Get the facts
Base your investment decisions on credible information. Read and study information available for free on websites such as the U.S. Securities and Exchange Commission, MarketWatch and Morningstar. Here you can get information ranging from the basics of investing to advice on researching and managing your portfolio to steps you can take to protect yourself from falling victim to investment fraud. Continue reading and studying and learn how to analyze the market, analyze stock charts and use charting tools.
Establish rules that promote diversity but limit the number of stocks in your portfolio. Although diversity is essential, a smaller portfolio will make management and control tasks easier, especially in the beginning. For example, start by setting up a rule limiting your portfolio to a maximum of 10 stocks. Set up another that says you will not purchase a new stock until you sell one you already own. Maintain diversity within your portfolio by including rules for asset allocation in your investment strategy that follow your time frame for investing and are in line with your risk-tolerance level. Make it easier to decide when to sell a stock by setting a “sell” rule. For example, if your risk-tolerance level is low, set a rule saying you will sell any stock that falls more than 7 percent to 8 percent off its purchase price.
Track the stocks in your portfolio and make adjustments – or rebalance -- when necessary. Rebalancing is a process that ensures your stock portfolio follows rules you set for asset allocation and is one the SEC suggests you tackle once or twice per year, or whenever an asset class deviates from the rules you set up in advance. Analyze each stock according to rules you set for asset allocation and determine whether time and market conditions mean the stock is now overweight, making up a larger percentage of your portfolio than it should, or if the reverse is true and the stock is underweight, making up too small a percentage. If your portfolio is at its maximum stock limit, make adjustments by selling stocks in overweight asset classes and then use the profits to purchase stocks in any underweight asset classes. If you have room to purchase new stocks, purchase stock in underweight asset classes only until you once again achieve a balanced stock portfolio
Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.