How to Build and Manage a Stock Portfolio
An investor looking at stocks on their smartphone
You’ve likely heard sagacious family members and friends recommend investing your disposable income, and for a good reason. You’ll want to protect your money’s value from inflation, and as a result, keeping it in a bank account isn’t enough. Although saving accounts can offer you respectable interest rates, you’ll likely find other investment avenues that can generate greater returns for your money.
In today’s world, numerous investment vehicles exist, like forex, cryptocurrencies, indices, commodities, and more. However, if there’s one investment vehicle that remains popular after all these years, it’s stock.
When you purchase stock, you’re essentially buying ownership within a corporation. If you buy enough stock, you could even become a majority shareholder in a large corporation, but it’ll cost you significantly.
Regardless, if you’re new to investing in stocks, you’ll want to research the market before investing. Stocks are generally considered excellent investment vehicles because they yield better returns than most alternatives. Historically, the stock market has outperformed the inflation rate, meaning you’ll see your money’s value increase provided you invest in the right stocks.
Investing in the right stocks is crucial to building a solid stock portfolio. However, the issue is that it’s easier said than done. It’s not uncommon to find numerous stock traders who don’t have diversified portfolios. Likewise, you’ll see many investors and traders have littered their portfolios with poorly-performing stocks. You’ll want to avoid a similar fate, which is why we’re here to help.
An investor looking at their stock portfolio on a laptop
How to Build and Manage a Stock Portfolio
Here are some tips to help you build and manage a remarkable stock portfolio. They include:
Study the Market
The first step to building a stock portfolio involves researching and studying the market. You’ll want to know how the stock market works and access as much market information as possible. Fortunately, the resources for studying and learning about the stock market have increased exponentially over the past few years. A quick Google search will help you get started. If you’re a beginner, you’ll also find value in our blogs, where we share numerous tips and guides for beginners to get started with stock trading.
Determine Your End Goal
Once you’ve studied the stock market and become acquainted with the basics, you’ll want to determine your end goal. Think momentarily about what you want from your stock portfolio. Are you looking to increase your wealth through growth stocks? Perhaps you want dividends that fund your retirement? Maybe, you’re looking to protect your assets or have a steady passive income source. You’ll need to consider your end goal to build a portfolio accordingly.
It’s vital to determine your end goal because your investment and trading strategy heavily depends on it.
Develop a Plan
Once you’ve determined your end goal, it’s time to start building your stock portfolio. Let’s assume you want to increase your wealth through growth stocks. If that’s the case, you’ll want to acquire growth stocks. Some of the most popular growth stocks over the past few years have been Amazon (AMZN), Meta (FB), and Netflix (NFLX). Experts also consider some other growth stocks like Shopify (SHOP), Unity Software (U), and Duolingo (DUOL) as excellent growth stock options for 2022.
It’s crucial to have a plan and stick to it because you might wake up one day and see your stock portfolio down by a few points. However, you have to trust your picks and assess the market frequently to ensure you’re on the right track.
Invest Sensibly
Making sensible investments sounds like a piece of cake. However, that’s not always the case. You’ll want to research and use common sense to eliminate poorly-performing stocks and industries you don’t like. You have to remember to invest in industries you understand and sectors you believe will grow.. For instance, cybersecurity stocks are booming. However, if you don’t understand how the cybersecurity industry works, you might struggle to pick the best stocks because you don’t understand the parameters to assess in your research.
The S&P and Dow Jones indices classify stock sectors. Currently, they have ten stock sectors for investors to consider, including materials, industrials, consumer staples, consumer discretionary, healthcare, financials, information technology, energy, and telecommunications and utilities. Ideally, you’ll want to have stocks in each sector to ensure portfolio diversification and avoid market risk. In addition, you’ll also want to reduce market risk by alternating between growth and value stocks. Likewise, it’s not a bad idea to have a healthy mix of dividend and non-dividend stocks.
Set a Time Frame
If you’re investing in individual stocks, you’ll want to establish a timeframe for your portfolio. You can’t expect your stock portfolio to generate sizable returns overnight. The process takes time and effort.
A graphical representation of an investor’s stock portfolio
Perform Continuous Stock Research
Once you’ve built your stock portfolio, it’s time to manage it. The stock market is complex and dynamic, and as a result, it’s ever-changing. You’ll find that stock prices can often change by the minute, if not by seconds. Hence, you’ll need to stay on top of your game and continually research stocks. Develop a selection criterion and continue looking at stocks that meet your requirements. For instance, if you’re building a stock portfolio comprising primarily growth stocks, you’ll want to look for companies with annual earnings growth of 20 percent or higher.
Analyze Portfolio Performance
You’ll also want to regularly monitor and analyze your portfolio performance to see how your portfolio is doing compared to the market. Again, you have to remember the stock market is dynamic and ever-changing. One stock might perform well initially but start to dip over time. Generally, you’ll want to have a stock portfolio that matches, if not exceeds, the S&P 500’s performance annually. For instance, the S&P 500 generated a 26.89 percent return in 2021. If your stock portfolio didn’t generate a similar return, you might want to reconsider and reevaluate your portfolio.
An investor assessing stock market performance on their smartphone
Build an Excellent Stock Portfolio Today with Crystal Ball Markets
A plethora of online investment platforms exist. However, not all online trading platforms are equal. Crystal Ball Markets is one of the best online stock platforms around. If you’re getting started in stocks, consider choosing the best online stockbroker. Visit our website today for more information. Alternatively, you can register with us today to get started.