Riya, a young investor did all the possible research and market data analysis to invest her total investment money in the stocks of an alcohol and beverage company. She anticipated that the investment in stocks would give her a return of 8 percent within the six months. But the incumbent government’s decision to ban alcohol as a part of its agenda hampered its sales therefore could not perform well and gave low returns.
The case of low returns faced by young investor Riya is not an unusual one. But, this could be avoided beforehand had she developed a stock portfolio and invested in some other profitable stocks to minimise losses.
What is a stock portfolio?
A stock portfolio is a collection of investment in stocks belonging to different sectors and industries. An investor by investing in stocks across profitable diverse sectors builds a better stock portfolio. There is age-old wisdom that says do not put all eggs in the basket, similarly while investing we use a different proportion of money to invest in different investment plans. An ideal stock portfolio consists of investments in small-cap stocks to forex currency. With sound portfolio management, investors can build the best investment plan that matches their income, financial goals, age, and risk capacity.
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A stock portfolio is a collection of investments in stocks belonging to different sectors and industries.
What is the need for the stock portfolio?
Building a stock portfolio helps new investors to cushion investment-related risks and increases the scope of getting more profits.
Helps investors build sound strategies on investment plans and revaluate the investment plan composition as per the current market condition so that investors can benefit maximum with the existing money.
Based on immediate financial needs and market conditions an investor can quickly customise its investment plans.
Helps an investor understand which investment plans will work best under what market conditions and distribute money into different investment plans.
Types of different stock portfolios
Based on investment strategies, here are some popular portfolios:
Income portfolio: This portfolio focuses on investing in such plans that give a steady flow of money from the profits distributed by the corporates which are known as dividends. An income portfolio generates a positive cash flow to return a chunk of its profits to investors instead of their tax status.
Growth portfolio: In a growth portfolio, the investor invests in stocks of a company that is in its active growing stage. Building a growth portfolio is associated with higher risks and such portfolios are popular for presenting high risk and reward aspects.
Hybrid portfolio: Hybrid portfolios are a mixture of investments into stocks of blue-chip companies or high-grade government bonds and passive investments like -art. Investing in a mixture of stocks and bonds in a fixed proportion offers stability.
Value portfolio: Investors building value portfolio invests in profitable companies whose shares are priced lower than their fair price. This type of investment happens when the economy is sliding. When the market revives, the low-priced investments generate higher returns. Investors building such stock portfolios have a low appetite for risks.
Things to keep in mind for a new investor while building a portfolio
Diversify: Investing in one or two stocks of companies is not sufficient. Risks are high when the investor focuses on the stocks of few companies, it is equivalent to putting all the eggs in one basket. An ideal portfolio should have 20-25 names, but again they should not invest in few shares of each company as it would not give better returns.
Regular buying: To strengthen the portfolio, it is necessary to invest regularly since doing this will help to increase your wealth over a long period. The habit of investment discipline should be adopted by every investor. If the income level rises, investors can invest more amount.
Reviewing investments: For new investors who have limited knowledge about a sector or stock should develop the habit of reviewing stocks regularly. Where one strategy is to buy and hold stock, but should not imply that we do not keep an eye on other profitable investments, as market prices vary swiftly.
Time-bound investments: Investors should also be diligent while putting in investment plans. For example- Retired individuals should invest in bonds and cash as risk levels associated are low. For young investors who have just begun their career, they can invest more into the high-risk investment plans that offers rewards as well.
