What are your investment goals? What are you trying to achieve by investing? If you take a little time to answer these questions, you will be better able to determine which stocks you should purchase. How you choose your stocks will depend largely on what your investment goals are. Once you know your goals, you can build an investment plan.
If your goal is to build a strong financial portfolio that will provide for your retirement, then your investment strategy should primarily focus on selecting stocks from strong performing companies that consistently have above-average returns.
Balancing your stock portfolio is also a critical endeavor for any long-term investor. This means you’ll want to have a core set of stocks that consistently perform well and a set of stocks that you may buy and sell at intervals throughout the years as performance and earning merit changes.
Additionally, a well-balanced portfolio will include stocks from different industries or sectors. By spreading your investments across the market you ensure that a downturn in any one area of the economy doesn’t decimate your stock holdings.
There are periodic ups and downs that hit the market in general and particular sectors are affected by different social, political and economic events. While at any given time one sector may be performing well, others can flounder. Spreading your stock investments over a wider range of industries allows you to withstand the inevitably ups and downs in the market.
Choosing Core Stocks
Your portfolio should include between 10 and 20 stocks issued by high performing companies that generally see higher-than-average returns. Selecting stocks which are included on the Dow Jones Industrial Average calculations can be a simple method of choosing core stocks. These stocks belong to some of the top companies out there who have weathered the ups and downs of the market over 20 or more years. You can also perform your own valuations on stocks to determine which will be good to include in your core stock investment group.
Core stocks can be large or small cap. The performance of the stock is more important than the size. Surveying the PE ratio of stock and book value of the company is crucial to selecting good core stocks.
Choosing Supplementary Stocks
Your core stocks make up the bulk of your portfolio, but many investors will also purchase supplementary stocks. These are often growth stocks that have the potential of yielding high returns in the future. The number of growth stocks you purchase and the periodic buying and selling of stocks in the category will largely depend on your own preferences.
If you’re interested in being a more active investor, then you’ll need to keeping up with the stock market and regularly changing out those stocks that are performing poorly and purchasing new stocks that have promise. As an active investor, you may also decide to include some value stocks in your portfolio. These are stocks that – for a variety of reasons – are a bargain purchase and may or may not generate income.
If however, you only monitor the market on occasion, the number of supplementary stocks you include in your portfolio should be minimal. You should monitor the performance of your portfolio on a regular basis anyway, but growth and value stocks require more frequent monitoring.
Choose your stocks carefully. A little research and a thorough understanding of your investing priorities will go a long way to helping you achieve your goals. Remember variety is key especially for long term investments. Choose a mix of long standing stocks with a history of above average performance.
• What are your investing goals?
• Create a list of 10 potential core stocks that will help you meet this goal.
• For each stock on your list determine if it is a small cap or large cap company.
• How long has each company been on the market?
• Why do you feel each stock is a good investment?