Investing in stocks is a great way to build wealth by harnessing the power of growing companies. But getting started can feel daunting for many beginners looking to get into the stock market despite the potential long-term gains.
So how exactly do you invest in stocks? It’s actually quite simple and you have several ways to do it. One of the easiest ways is to open an account with ZuluTrade, find a brokerage right for you and buy stocks or CFD’s with a number of selected brokers. Either way, you can invest in stocks online and begin with a bit of capital.
So clear your financial planner! Learn here on how to invest in stocks and the basics on how to get started in the stock market even if you don’t know that much about investing right now.
Table of Contents
How Much Money Do You Need to Build a Stock Portfolio?
How Long Does it Take to Build a Good Stock Portfolio?
What Stocks Should You Buy for Your Stock Portfolio?
What is the Best Way to Build a Stock Portfolio?
Step-by-Step Process for Building a Stock Portfolio
What is a Stock Portfolio?
A stock portfolio is a collection of stocks that you invest in order to achieve positive performance that is greater than passively investing in the Index. By putting together a diverse portfolio that spans various sectors you’re able to become a more resilient investor. That’s because if one sector takes a hit, the investments you hold in other sectors aren’t necessarily affected, achieving higher levels of potential diversification than just exposed on one stock picks or one sector.
The different categories of stock portfolios are classified by the type of investment strategy that they serve. The portfolio style that’s best for you will depend on your risk tolerance; how much time and money you can dedicate to monitoring and building your portfolio; and how long you want to keep your money in your investment.
- Growth portfolio – A growth portfolio is one that’s expected to grow faster than the rest of the stock market. Growth portfolios carry the greatest risk with more downturn.
- Income portfolio – An income portfolio is one that’s expected to generate a reliable return with little level of risk.
- Conservative portfolio – A conservative portfolio is focused on growth and capital gains while carrying more risk than an income portfolio.
How Much Money Do You Need to Build a Stock Portfolio?
Well, it depends. You would typically need to have the minimum investment requirements and many offer fractional share investing for those starting with small amounts into stock investments. It is possible to start a good portfolio with an initial investment of just $1,000, followed by monthly contributions of as little as $100. But this is purely down to you and your circumstances. Just make sure that the money you’re investing won’t be needed for regular expenses and can stay invested for a whole investment period/cycle.
Take the funds from your personal finance that you would have used on non-essential expenditures and put the funds into a separate interest-bearing savings account. Perhaps live by the rule of paying yourself first. Determine an amount that you will take from each paycheck and devote it to asset classes savings before doing anything else.
You can set up automatic transfers from your checking account to your savings account so that you aren’t tempted to skip on saving. Also, inform any type of IRA or equivalent of investment returns. Finally, don’t underestimate the power of simply saving your spare change.
You typical financial advisors would say that diversification of your portfolio is also essential. Diversify and smart asset allocation is very important for building up your stock portfolio. Diversified portfolios lowers the risk of huge volatility in one sector of your portfolio and could in turn save it from any unwanted crashes.
Your typical financial advisors would say that diversification of your portfolio is also essential. Diversify and smart asset allocation is very important for building up your stock portfolio. Diversified portfolios lowers the risk of huge volatility in one sector of your portfolio and could in turn save it from any unwanted crashes.
A great rule to follow for knowing how much to put in to your portfolio is the 80:20 rule. As suggested, it aims to preserve 80% of your wealth, while actively trying to grow the other 20%. So roughly speaking, 20% can go towards investing in stocks and other 80% can go into a savings account or relatively less risky investments like bonds.
How Long Does it Take to Build a Good Stock Portfolio?
Well to answer this question , it depends on your goals but to also remember that it takes pure patience and learning to understand. The main things to consider when defining your investment strategy are your time horizon, financial goals, financial planning, risk tolerance, tax bracket, and time constraints. Based on this information, there are two main approaches to investing.
Passive investing — an investing strategy that takes a buy-and-hold approach, passive investing is a way to DIY your investments for maximum efficiency over time. In other words, you can do it yourself instead of working with a professional. A buy-and-hold strategy focuses on buying investments and holding on to them as long as possible. Instead of trying to time the market, you focus on time in the market.
Active investing — an active approach to investing that requires buying and selling, based on market conditions. You can do this yourself or have a professional manager managing your investments. Active investing takes the opposite approach, hoping to maximize gains by buying and selling more frequently and at specific times.
Source: Pixabay.com
What Stocks Should You Buy for Your Stock Portfolio?
The main types of stock are common and preferred. Stocks are also categorized by company size, industry, geographic location and style. Here’s what you should know about the different types of stock. Again nothing is ever “low-risk” especially in small-cap stocks, those would be considered risk investments.
Type #1: Growth stocks
These stocks do not pay high dividends as the company prefers to reinvest the earnings to enable it to grow faster, hence, the name growth stocks. The value of the shares of the company rises with the fast growth rate which in turn allows investors to profit through higher returns. It is best suited for those investors who seek long term growth potential and not an immediate second source of income. Growth stocks carry higher risk than their counterpart.
Type #2: Income Stocks
In comparison to growth stocks, income stocks hand out a higher dividend in relation to the price of the share. Higher dividends translates to higher income, hence, the name Income Stocks. Income stocks are indicative of a stable company that can afford consistent dividends but these are also companies that do not promise very high growth. This means that the stock price of such companies may not rise much. Income stocks also include preferred stocks.
Type #3: Preferred stocks
Preferred stocks offer investors a fixed amount of dividend every year unlike common stocks. The price of preferred stocks is not as volatile as a common stock but it is common stock that gets the benefit of priority when the company has surplus money to distribute. At the time of company liquidation, it is the company’s creditors, its bond holders, debenture holders who get priority over the preferred shareholders. Common stockholders have voting rights, a privilege preferred shareholders do not enjoy. These mostly held as short-term investments.
Type #4: Hybrid Stocks
There are companies that offer preferred shares with the option of converting them to common shares, with conditions, at a certain point in time. These are known as hybrid stocks or convertible preferred shares and may or may not have voting rights.
What is the Best Way to Build a Stock Portfolio?
With portfolio management, it’s important to know your fundamental goals and why you want to start investing in the first place. Knowing this will help you to set clear goals to work toward. This is a crucial first step to take when you’re looking to create an investing strategy later on.
Way #1: Manually Picking
If you’re going to pick a stock, look at the company’s financial statements and select the stock based on the “bucket” you’re trying to fill in your portfolio. For example, are you looking for a dividend stock? Look at the dividend history. Are you looking for a growth stock? Look at the earnings per share, Is it showing consistent growth? Consider how these indicators measure against its peer group. It’s a lot of info to take in but that’s what it’s about. Plus you may have that eye for those good value stocks.
Way #2: Index Funds
This type of investment vehicle is a mutual fund that’s designed to track a particular index such as the S&P 500. Index funds invest in stocks or bonds of various companies that are listed on a particular index. Can also be found on exchange-traded funds.
Way #3: Mutual funds
This investment vehicle also allows investors to pool their money to invest in various assets, and are similar to some ETFs in that way. However, mutual funds are always actively managed by a fund manager. Most mutual funds fall into one of four main categories: bond funds, money market funds, stock funds, and target-date funds.
Way #4: Investment baskets
Coming soon to ZuluTrade, hopefully very soon. Basket trading lets you create a list of up to 50 stocks, called a basket, that you can save, trade, manage and track as one entity. Use the baskets you create to invest in and track stocks grouped by a rebalancing investment style, market sector, life event, or any classification you choose (like healthcare, tech and more).
Step-by-Step Process for Building a Stock Portfolio
Now that we’ve covered the most common types of stock portfolios, let’s explore the process of creating the portfolio of your choice step by step. Every investing journey should start with a clear set of goals.
Step #1: Do Your Research
While financial knowledge might not completely eliminate the risk that comes with investing in the stock market, it helps you make informed decisions that can help you manage that risk. That’s why you should do thorough research and make sure you understand the financial markets before you proceed with your investment strategy.
Step #2: Draft Your Portfolio
You should draft the rough outline of your portfolio by selecting a roster of assets you wish to invest in. You can do that by choosing individual stocks, bonds and instruments that fit within your strategy, or opting for ready-made solutions such as mutual funds.
Step #3: Create Your Portfolio
Once you’ve done enough background research and experimentation, it’s time to pull the trigger on your portfolio and start investing. Reach out to your investment broker or use an online investment platform to start building your portfolio. Keep in mind that you might not be able to invest in all of your desired assets in your desired proportions, right off the bat. Remember to remain patient and focus on your investment goals.
Step #4: Monitor, Reassess & Rebalance
Congratulations, you’ve created a stock portfolio that fits your investment goals! Be sure to proactively monitor your portfolio’s performance (or entrust that to your service provider) to ensure that it’s growing and delivering returns just like it’s meant to. If it doesn’t, you might have to go back to the drawing board to reassess and rebalance your assets. Finally, you should pull back on any scent of a bear market.
Now Over to You
The great thing about investing these days is that you have so many ways to do it on your own terms, even if you don’t know much at the start. You have the option to do it yourself or have an expert do it for you. You can invest in stocks or stock funds, trade actively or invest passively. Whichever way you choose, pick the investing style that works for you and build your wealth.
We hope you enjoyed this edition of the knowledge crunch blog just as much as we enjoy writing them! Stay tuned for more and be sure to check out our other helpful blogs with advice and tips to reach your investment goals with ZuluTrade.
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Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance which does not constitute a promise or a certainty for a future one.