Investing in the stock market isn’t just for the mega-rich—with the right strategies, average people can also reap huge benefits from this enthralling arena, plus earn some extra cash on the side to spend on a self-love gift (or two).
To start your investment journey, you’ll need to learn how to build a profitable portfolio and grow it based on your financial goals, market knowledge, and interest. Not sure where to start? Luckily for you, you’ve stumbled (or deliberately clicked) on the perfect article. Continue reading for the ultimate guide to a poppin’ portfolio.
Step 1: What Type of Investor Are You?
Despite all the exciting possibilities of the investment world, a newbie might be short-stocked on pertinent info. You may still be asking yourself, “What is stock?” or “how do I build a portfolio?” To start you off on the right track, you first have to look at your easiest source of information: yourself. To build a profitable portfolio, you’ll have to decide what type of investor you are.
Are you more aggressive, or more risk-averse? Are you familiar with the markets in which you’re investing, or looking to be guided? All of these questions and more are crucial to your investment strategy.
To nail down your asset allocation (the investments where you’ll be allocating your money) consider the following factors before making any purchases:
- Time to Accumulate – The investment portfolio of a middle-aged parent planning on retiring in two decades is going to look quite different from that of a recent college grad with no spouse or dependents—how much time you have to accumulate wealth through your portfolio will determine the risks and investment strategies you need to undergo.
- Risk Tolerance – Prefer surfing TV channels over ziplining? No matter your financial goals, personality and risk tolerance are vital factors to consider when building your portfolio. Higher risk increases the possibility of high rewards, but you’ll also have to stomach some scary short-term drops and market uncertainties.
- Income Goals and Need – Whether you are approaching retirement, thinking about buying a home, or starting a family, your need for future income and a financial plan will play a vital role in determining your portfolio—the more value you need to protect, the more conservative your investments.
- Amount Invested – The amount of capital you initially invest into your stocks will also determine how much growth you desire to achieve your income goals—the more there is to work with, the more you’ll gain in a shorter time (however, that’s also more money you risk losing).
Step 2: Diversify Your Investments
Just like any good TV show is better with some diversity, so is your portfolio. You’ll want to make like a tween girl in the early 2000s and mix-and-match prints, colors, and patterns (but instead of clothing items, you’re mixing stocks, bonds, and funds).
Diversification comes in many forms. You’ll first want to determine your desired mix of investment types, which look like the following:
- Exchange-Traded Funds (ETFs)
- Mutual Funds
If you’re more aggressive, you’ll have a stock-heavy portfolio, versus a more conservative investor who would have a portfolio with an even mix of stocks, bonds, and various funds. For beginners with long-term goals, go with a more conservative approach.
Diversification can also imply different markets or industrial sectors. Whether you’re extra tech-savvy or clued into the fashion world, you may want to invest in the areas you’re most familiar with—you’ll still want to diversify by investing in several different companies and sectors.
Step 3: Have Patience, Young Padawan
Not to get too esoteric with the Star Wars references, but imagine that you are Luke Skywalker and your stocks are Yoda—you have to concentrate with all your might to carry Yoda on your back, even if you get impatient or need to save your friends from Jabba the Hutt. Okay, maybe it got too specific there.
Anyway, this is all to say that investing requires great patience and focus—you’ll want to be continuously monitoring your stocks and checking on markets that you predict will grow. Never lose sight of your financial goals, don’t get over-excited with swift changes (for that is the name of the game), and never invest more money than you’re comfortable losing.
Sooner than you know, you might just have The Force (the Investment Force, that is).
Stay Calm and Carry On Investing
While the investing world may seem daunting, it doesn’t have to be so elusive—with the help of online resources, investment apps, and professionals, you’ll be well on your way to curating a portfolio specific to your needs and goals. Just keep your head on straight, be patient, and wait for the money to roll in.
In the meantime, go watch an 80s sci-fi movie.