Fundamentals Aspects of a Diversified Stock Portfolio
An investment portfolio takes time to build, but the return on investment over time is often dependent on how well your portfolio is diversified. In the long run, the stock market has proven to be the best investment for the individual and will give you the greatest return on your money. However, you want to be able to grow your money over time, without putting it at too much risk. When you are young, you can tolerate more risk in the stocks you buy, but as you get older, you need to focus on stability in your portfolio. The following are three things to keep in mind when building your portfolio.
Take more risk at an earlier age
Most men and women will work about forty years, some a little more, deepening upon the age of retirement. It is in the first third of your working years that you can take more risk in your stock portfolio, but no more than half of the stocks should be high risk companies. Stocks to look at include start-up firms in areas of technology and the medical field. This investment stage can last until your mid thirties.
Reduce risk in your middle ages.
As you approach your late thirties, you need to move money from high risk investments to stable companies with more predictable price movements. Blue chip companies that offer dividends are a good choice. You can still have some higher risk stocks in your portfolio, but it should not represent more than a third of your portfolio.
Reduce risk to zero nearing retirement years
Eliminate all high risk stocks in the last 15 years of your working years. For most people this is from the age of 50 and up. Now that you have built up your nest egg, you want to protect it as much as possible. You should have virtually no high risk stocks in your portfolio.
There are those who simply invest their money in mutual funds that are geared toward high risk to low risk and with various rates of returns, but the truth is that you will feel better and be more confident that your money when you choose which stocks to invest in. The key to success is knowledge, so learn everything you can before you buy your first stock. There are many good places to get stock market investment knowledge, especially on the Internet. One example can be found by reading Online Trading Academy Reviews.