While stock portfolios represent collections of investments, your personal portfolio should be unique to you and your goals. Stocks are available for all types of companies, from aggressive start-ups to conservative multinational corporations. Most investors share the goal of making money from their stock portfolios, but the method you use to earn your profits can be dramatically different than that of others. To properly establish a portfolio, you'll have to analyze your own needs and investing personality.
The first step in determining which stocks belong in your portfolio is deciding what you want out of your investments. Some investors want a steady stream of income from their stocks, in the form of quarterly dividends. For them, capital appreciation is an added bonus. Others don't want income but instead will seek the maximum possible increase in stock value. Usually, the younger you are, the more aggressive you can make your portfolio, because you have time to ride out the ups and downs of the market cycles. However, regardless of age, your investment objectives should be a guiding force in your portfolio selection.
Just knowing what you want out of your stock portfolio isn't enough. If you can't stick with your stocks for the long haul, then all the planning in the world won't get you to your investment goals. Stocks can fluctuate wildly from day to day, and even from minute to minute. If you can't tolerate large swings in the value of your stock portfolio, you might have to tone down the risk. All stocks are susceptible to market swings, but a portfolio of larger, more established companies is typically less volatile than smaller, rapidly growing companies. Factor in your ability to handle price changes when constructing your portfolio.
When assembling a collection of stocks, consider the big picture. Each stock might be unique, but stocks in general tend to follow trends in their own industry. If you buy 10 different stocks that are all in the natural gas industry, for example, you aren't getting much diversification. While a one-dimensional portfolio can look good when things are working, you could end up losing a significant chunk of your money when things turn bad in that particular sector. Consider diversifying your portfolio further by owning stocks with differing styles -- such as growth and value -- and differing company sizes, from small to large. Taking a portfolio approach to your stocks can help you smooth out the daily ups and downs while still offering a good long-term return.
You'll need to open an account to set up your personal stock portfolio. Most financial services firms allow you to open accounts online, but you may choose to go in and meet face to face with a representative. You can usually save on fees if you run your own account, but paying a professional may be invaluable in terms of support and advice. In either case, you'll need to provide your name, address, Social Security number, birth date and other personal information to begin. You'll also have to fund the account, usually with a check or electronic money transfer from your bank. Once your account is approved, you can begin buying stocks and building your portfolio.
Video of the Day
- Photos.com/Photos.com/Getty Images