While creating and managing your own investment portfolio might seem intimidating, it’s definitely possible with the right guidance. So, today we wanted to give you 7 tips for creating your investment portfolio.
Tip # 1. Determine a Clear Objective
Before creating your investment portfolio, it’s important to know what you want from it. Why? Because buying stocks aimlessly just to diversify your portfolio won’t get you any closer to your financial goals. You need to know what your objectives in order to determine what types of stocks you need to meet your objectives.
Tip # 2 Diversify
Diversifying your portfolio is the act of buying a variety of stocks in order to protect yourself from losing your money on a single company. While diversifying your portfolio is obviously important, there are tons of recommendations for how many stocks you need. The truth is, there isn’t a “right” amount. Most people opt to get at least 10 different stocks, so as long as you have the time to do the proper research and you know your objectives, feel free to buy as many stocks as you want. Just remember that the more you buy, the more you’ll be paying out in commission fees. In other words, make sure you can afford the diversification you’re planning on doing.
Tip # 3. Keep Costs Low
Speaking of commission fees, when you’re creating your investment portfolio it’s easy to quickly spend a lot of money. So while it’s exciting to see your portfolio start to come together, keep the expenses in mind. As you give up dollars in commissions, fees and sales loads, remember that those are dollars you could have invested. Small amounts of money compound to large amounts of money over time and it’s super important to remember that!
Tip # 4 Keep Turnover Low
While day trading can be profitable, when you’re creating a portfolio you’re thinking long term. This means you’re looking for stocks you don’t intend to sell. Act as if you’re buying the whole business, not just a tiny piece. Do your research and truly believe in the companies you’re investing in. If you wouldn’t buy it, don’t purchase stock in it. Many people purchase stocks associated with trends or suggestions on a whim, only to see them crash, such as ssol did. With all of that being said, turnover constantly correlates to bad investment performance. So, do your research, and plan on keeping stocks in your portfolio for the long term.
Tip #5 Think About Taxes
Let’s keep it real, no one likes taxes. Thankfully, Roth IRA’s are one way of getting a bit of a tax break. Roth IRAs work in that your money is taxed from the get go, but you don’t pay taxes on your dividends, capital gains or even interest when you retire. If you’re curious about how this all works, let’s say you put $1,000 a year into your Roth IRA. You currently would pay somewhere between$100- $300 (let’s assume $150) in income taxes. The $850 you’re left to invest with (without any future investments) would turn into $18,465 over the course of 40 years at an 8% growth rate and you wouldn’t have to pay taxes when you pulled it out! That’s a huge advantage! So, definitely look at including a Roth IRA in your portfolio.
Tip # 6 Create A Rounded Portfolio
While thinking about diversification, try to think beyond stocks. What about bonds? Other investment opportunities like real estate? Think outside the box for even more investment opportunities.
Overall, you want to make a conscientious decision to create a well-rounded portfolio in all areas. Never rely on one firm, or what sector of an industry to create your profit. You should never feel stuck in one sector with your portfolio, remember the world is literally at your fingertips. Do your research and figure out what works for you
Tip # 7 Stick To The Game Plan
Last but not least, when creating your investment portfolio make sure you never overpay for an asset. Often when we spend time planning, researching and then buying the “perfect” stock we get a bit of an ego. This ego tells us to just buy the stock because our research shows it’s a good stock to buy. Or perhaps we invest in a stock and it does really well so we get overly optimistic and buy more!
These are the mindsets that get us in trouble. Remember your objectives, and stick to the portfolio investment plan you create. Even if something is looking good, the price will end up reflecting on you in your returns. Plus, the market is volatile. Stocks that look great today can fall tomorrow.
So there you have it! Those are our 7 tips to help you create an investment portfolio! Now go forth and invest!