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How To Build a Stock Portfolio


There are many ways to build a stock portfolio. An individual’s appetite for risk, the dollars one has to invest, the time to conduct research and confidence are some of the factors to consider when deciding if putting together a stock portfolio is a worthwhile endeavor. However, today it is easier to do than it has been in the past thanks to the abundant resources now available. Here is a quick start guide to help you get underway.

Please understand, this is a basic portfolio building strategy and will not suit every investors needs.

Step One:  Allocation

One of the keys to building a core portfolio is to diversify your holdings. For the purpose of this article, we are going to limit this portfolio to ten holdings. Each holding will have equal weight. So, if you have $10,000 to invest, each holding would be worth $1,000.

Step Two:  Sectors

One of the simplest ways to diversify a portfolio is to buy one stock in each of the nine sectors that are widely referred to as broad sectors within the stock market. This will give us nine stocks. The nine sectors offer mostly cyclical stocks, which are stocks that rise or fall at different times within stock market advances and declines. The tenth stock you may pick from any sector you choose, so you will have two names from that sector. Below are some broad sectors which sometimes have different names depending on where you conduct your research.

  • Basic Materials
  • Capital Goods
  • Communication
  • Consumer Cyclical
  • Energy
  • Financial
  • Health Care
  • Technology
  • Transportation

Step Three:  Stock Selection

Now comes the part where you are going to have to do a little homework. There are many ways to screen stocks and different criteria for doing so. Online sites such as Google, Yahoo and Valueline offer some pretty good tools for many investors.

Step Four:  Monitor

A portfolio is a lot like a garden. You will have some beautiful plants and you are likely to get some weeds too. Monitor your holdings and add to positions that are doing well and do not be afraid to sell stocks that are performing poorly. A quarterly review is a good starting point.

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