How To Start A Stock Portfolio The Right Way

How To Start A Stock Portfolio The Right WayHow to start a stock portfolio that eliminates your overpaid stock broker is one question that plagues most investors.  I will make it easy on you right away.  If you want to see how I am running a $10,000 portfolio, just click here to see it.  You can read the article below to get more information as well.  This is one question that everyone in America needs to be able to answer.  If you do not know how to start a stock portfolio, then you came to the right place.  As a former stock broker, I know that the worse thing for a person not to know is how to start a stock portfolio.  Why you may wonder?  Well, the answer may just surprise you.Why did I not want people to know how to start a stock portfolio when I was a stock broker?  The answer is straight forward.  I wanted them to pay me to run their portfolios.  It all came down to pure greed.  The more ignorant the general public was on creating a stock portfolio, the more money I made in commissions.  The good news is that I am now helping people, for free of course, set up their own stock portfolios.  This allows the average investor to cut out a ton of management fees as well as other high cost brokerage house fees.  Back in the day, an investor would have to pay me anywhere from 1% to 2% of the purchase price for buying their securities for them.  You will do the same thing for yourself for pennies on the dollar. I will start with stating a few facts concerning the stock market.  It is intimidating and risky.  This is a fact.  Put your money into a company like Lehman Brothers or Enron and you could end up flat broke overnight.  But with my help, you will build up a solid portfolio that can withstand the test of time. Before we get into the guts of this article, you may want to see how to really score some stock market cash.  It is quite the read to say the least and will help motivate you towards starting your portfolio.

How To Start A Stock Portfolio The Right WayIf you want to know how to start a stock portfolio, then you need to know what the goal of starting a portfolio is.  In other words, why are you starting your own stock portfolio?  The answer to this is to simply beat the market results.  If the market goes up 10% this year, your goal is to have your stock portfolio go up 10.1%.  If you can do this, you are better than most of the highest paid financial advisors in the world.  In fact, there was some studies done by three folks named Arras, Scaillet and Wermers that went ahead and follow about 2,076  mutual funds and what they found is very disturbing.  Do you know how many of these funds actually beat the benchmark index that they were shooting for?  0.6%!  That means that only 12 fund managers out of 2,076 were able to beat the market.  So if you put your money into a nice S&P index fund, you would be able to beat or at least match 99.4% of all professional overpaid fund managers.  This is a secret that they don’t want getting out.  Why?  They would lose all there high paying customers and thus their million dollar homes.  Remember that I was once them and know the dirty little secrets that go with being in the business. Now that I am done exposing the secrets of the Wall Street brokerage houses, let’s get on with showing you how to start a stock portfolio the right way so you can avoid their overpriced services.

Take a look at the chart below, it gives you a great idea of what a truly diversified portfolio can look like for someone heavy in equities.  This is not etched in stone, but open to changes based on many different variables as this investor ages.  The younger you are, the more risk you can take.  The older you get, the more you will want to focus on income based investments.  Either way, age will play a very big part of your portfolio strategy.  Down below this chart, you will see other diversified portfolio examples that you can base your portfolio on.  Remember, each person will have certain variables that will affect what kind of portfolio they need.How To Start A Stock Portfolio The Right Way

One of the worse things anyone can do with a stock portfolio is to have a high turnover.  In other words, I will show you have to avoid buying and selling a ton of stocks all the time.  That is one of the main reasons investors can’t beat the market.  You have to try to keep your investment cost as low as possible.  Buy and hold is a solid piece of advice that will help you be one of the 12 people that will beat the market. If you don’t have an online brokerage house as of yet, let’s get you one.  There are many out there that will offer basically the same service.  Please don’t be fooled by how brand recognizable they are.  If you have heard of them, like Etrade and Ameritrade, then you are probably going to pay a little extra for the brand recognition.  There are a bunch of online brokerage houses that you will be able to use.  Most of these brokerage houses will offer trades for anywhere from $5 to $15 a trade.  I personally use Ameritrade as of the writing of this article.  I am looking at transferring to any online broker in order to snag some easy bonus money and free trades.  I like to look at the online brokers like I do credit cards, I like to use them against each other and take advantage of all the freebies.  Their goal is to give a ton away to get you there in the hopes that you will stay with them forever.  I can tell you that it is very easy to leave and then come back when you quality for another bonus.  This strategy will give you a few extra hundred if not a few extra thousands a year to learn how start a stock portfolio with.

How To Start A Stock Portfolio The Right Way

Let’s get started with setting up that self managed stock portfolio.  My first task for you is to come up with the money you will be investing.  What I am looking for here is the amount of money you will not have to touch for at least 5 years.  Anything less than 5 years will need to be invested in some short term securities like certificates of deposit.  These can be found at any local bank.  We are trying to build a solid performing portfolio and this can only be done investing for the long term.  Don’t worry if you do not have a ton of cash to invest, you can always add a little every month.  You could always do what I do and earn extra cash on the side by running a blog like this, not that you will get rich, but it helps to pad the investment accounts.How To Start A Stock Portfolio The Right Way

I would like you to consider signing up for my free newsletter.  It is how I get over 10,000 readers my free stock reviews and inside financial information.  If you are looking for solid stock selections without having to pay hundreds of dollars to an advisor, you may will want to sign up for this.  Thanks in advance and enjoy the picks.

After you have figured out how much you will be able to invest with, you will be able to move onto the next step. In order to understand how to start a stock portfolio, you need to understand the multitude of different financial securities that you will be able to buy.  The first and most popular is stocks.  These are ownership’s in companies plain and simple.  If you buy a share of Apple stock right now, you will be able to say that you own Apple.  The company sells itself to investors by issuing stocks in return for money.  These companies use the invested money to better themselves by growth or debt reduction depending on the situation.  Either way, you now are entitled to some of the value of the company.  As the company makes money, two things usually happen.  One, they will pay out dividends to their shareholders.  Or two, they will use the money to continue to grow in which the share price will increase and you make a profit that way. But what kind of stocks are there?  The two most recognized forms of stock are the common stock and the preferred stock.  The preferred stocks pay a set amount of dividends per share before any payments are made to common stock holders.  But the benefit of common stock holders is that if a company makes a ton of cash, then the holders of common stocks can earn more in value then a preferred stock holder earns.

How To Start A Stock Portfolio The Right WayCommon stocks are usually looked at as about 6 different varieties:

  1. Income Stocks:  These stocks are financial instruments that pay a higher dividend than the other types of common stocks.  These are nice investments for those that are retired and looking for an income to spend over fixed periods of time.
  2. Growth Stocks:  These stocks are financial instruments that will rise or fall in value much faster than the other types of stock.  This is a solid investment for those that can let the stock go for years and not months.
  3. Blue Chip Stocks:  These are usually your older well established companies that are relatively stable in their growth rates and therefore are less risky than their counterparts.  They face risk, but not quite as much as growth stocks.
  4. Defensive Stocks:  These are companies like McDonalds who make goods and services that customers will purchase no matter what happens to the economy as a whole.  You can think of utility companies when you think of defensive stocks.  People will always need electricity and pharmaceutical items.  These are the kind of companies that you will invest in during times of recession in order to keep the value of your stock portfolio growing.
  5. Cyclical Stocks:  These stocks usually follow the ups and downs of the overall economy.  Think of vacation stocks and travel stocks.  When the economy goes into recession, you can expect less airline traffic and vacations and thus their stock prices fall.  When the economy picks up, you will see these stocks pick up as well.  So if you expect the economy to continue to grow, you will want to add these to your portfolio.  If you hit a period of recession, you may want to rid your portfolio of these kind of companies.
  6. Speculative Stocks:  These stocks are your high fliers.  They usually represent your new companies that have little known about them.  Technology stocks can fall into this category as well as companies that have a management turnover.  These stocks can offer the biggest gains, but also the biggest loses in the stock category.

How To Start A Stock Portfolio The Right WayThe next major step in figuring out how to start a stock portfolio is developing your short and long term goals.  Are you looking to make a ton of cash as fast as possible?  Well then, you will want the majority of your stocks to be growth and speculative like I recommend here.  If you are getting close to retirement and can’t afford to risk your principal investment to the ups and downs of the market, then you will want to invest in a majority of blue chip and other safe stocks.  If you are retired and need a stable amount of income every month, you will  want to invest in a majority of income based stocks, like the ones I recommend here.  No matter what boat you are in, you will want proper balance in your portfolio.  Try to diversify your holdings in order to lower your overall risk. Now as your portfolio grows and changes, so will you overall goals.  When you get within 5 years of retirement, you will want to place a lot more weight on stable stocks and income stocks going forward.  One bad recession and you could lose a good chunk of your savings.  A major correction in the stock market usually takes about 20% of your portfolio down with it.  A normal correction is down about 10% and takes that much of your portfolio with it as well.  The younger you are, the more risk you will be able to handle.  If you happen to be invested in the market during a recession, you will have the time it takes to overcome that recession and capture the gains of the recovery.  The market has consistently grown over its entire history.

The next major step in learning how to start a stock portfolio is making sure you properly diversify it.  Do not allow your portfolio to be made up of just a handful of stocks.  If you have only four stocks making up your overall portfolio, and one happens to pull an Enron or Lehman Brothers and goes bankrupt overnight, you will  lose 25% of all your money in one day.  The idea of diversifying is to purchase a number of different stocks in all the different industries possible.  Some investors also like to invest in some foreign markets in order to try to capture even larger gains.  Imagine investing in Chinese stocks before their market went nuts.  You would of made a fortune.  But, just make sure you are putting about no more than 3-5% in any one stock.  The less you have in different stocks, the more risk you will have for your portfolio.  Now that is all good if you can afford to lose that money, because the potential gain will be higher than a well diversified portfolio.

How To Start A Stock Portfolio The Right Way

Your next step in learning how to start a stock portfolio is to make sure you are investing regular amounts of money into it.  Just as you are paid during regular intervals of time, so should your portfolio.  It is hard at work for you and will do a better job of getting you the kinds of returns you are looking for with consistent deposits into it.  This is known as dollar cost averaging and will be one of your best friends when it comes to building up your portfolio.  Dollar cost averaging allows you to keep buying shares when the price drops and capture the gains as the stock price increases, thus helping your overall return rate.  One popular kind of portfolio that uses dollar cost averaging is a direct investment portfolio.  These DRIP portfolios, as they are known, allow you to start with a very small amount of investment money and allow for free deposits and share buying in order to build up your portfolios.  The best part of DRIPs is the fact that there are broker costs associated with them.  It allows low income investors to build up a nice portfolio without sacrificing a ton of money on fees.

How To Start A Stock Portfolio The Right WayNow we are at the part of learning how to start a stock portfolio that I love more than any.  This is where I show you how to look for good stocks on your own.  I love looking at the Price to Earnings ratio of a company to see where they are compared to other like companies or the market as a whole.  I was taught during my days as a professional investor to look for companies that have a P/E lower than the market or their competitors in the same industry.  This means they are selling at a discount and we will be able to capture more profit with them going forward.  Most financial reports will have the P/E ratio shown first in order to give you a good idea of how it is priced.  I personally try to stay away from any stock that have a Price to Earnings ratio that is above 15.  I really like to focus on stocks that are trading with a P/E of 10.  This usually means that you can expect a nice gain up to 50%, with all things staying equal, in order for the stock to hit the magic P/E of 15.  (The average P/E of the market over its life)  Eventually, you will see the stock hit a nice appreciation period and your portfolio will grow like a week.  If that company starts to have declining sales though, you will see the price continue to be low.  But you will be better off with these kind of stocks than you will be with higher P/E stocks in my opinion.  You can see how I discuss low P/E’s with my article here and select a few good stocks with that being the main factor.  If you want to see a stock with a super low price to earnings ratio, take a look at this company that I analyzed.  It will be one of the best things to consider as you look at stocks.  If a company is trading at a P/E above 15, I suggest staying away from it, unless you know something that the general investor does not know.

How To Start A Stock Portfolio The Right WayAnother fantastic piece of advice for learning how to start a stock portfolio is to take a look at the company’s book value.  This is an easy equation to use.  You just take the value of the company’s assets and divide it buy all the shares outstanding.  If your answer is about what the share price is or a bit lower, than you are buying a value stock.  Couple that with the P/E way of buying and you are looking at a solid strategy.  This can take a bit of time to research, but after you have found a few of these stocks, you will be on the right step towards to crushing the market’s average return rate.  Now you definitely want to see if there are a bunch of underlying reasons why the company is selling at such a discount.  Every once in a while though, a company’s stock price drops to levels that are considered cheap and that is when you want to buy it.  It just takes time to find them.  After you find them, you will know how to start a stock portfolio with the perfect securities.

How To Start A Stock Portfolio The Right WayWhen learning how to start a stock portfolio, you will  want to see how much debt a company has on its books.  Some companies are so heavily leveraged with debt that one mistake could put them into bankruptcy.  For example, look at Radio Shack and how they are deeply in debt to the point that they are considering bankruptcy.  Circuit City and Blockbuster were two companies that carried too much debt and paid the ultimate price.  If you find companies like these, you can always short the stock and profit as the price drops.  Shorting a stock is the opposite of hoping a stock price goes up.  You make money only when the stock drops in price.  It is not a widely used strategy, but it is definitely one that works.  I personally used it on Lehman Brothers back a few years ago and sold short a few grand on Friday and then they went bankrupt on Monday.  I was able to double my money in a matter of 48 hours after the government refused to bail them out.  You can always check out the link below to see how this investor turned a grand into a cool million.  If nothing else, it is a good read.

How To Get Rich With Stocks

At this point, you should feel like you know how to start a stock portfolio.  Take the tips up above and use them to your advantage and you will be looking at solid gains and a great portfolio.  You are more than welcome to email with any of your stock picks and I will give you my opinion for free.  If you are not sure how to go about looking at a stock, you can always look at some of my other articles on the site.  It will be well worth our time.  Also, I have a nice newsletter that will send free stock picks right to your inbox.  Good luck and have fun with your investing, it is the smartest thing you can do.  I will leave you with this chart below that shows you how to become a millionaire rather straight forward.  It will happen if you are disciplined.  After all of the above, you should know how to start a stock portfolio the right way.

How To Start A Stock Portfolio

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Notice: Any information that is written on this site is for educational purposes only. It should never be considered as financial or investing advice. Anything you read on this site is just informational and that is it. I am no longer a registered financial advisor and licensed by the SEC. I am now just a blogger who enjoys writing about stocks and making money online. You should always seek a professional financial advisor for advice on investing and any stock you are considering. Remember that investing is inherently risky and you could lose all of your money. I am also an affiliate of some of the items discussed on this site. In other words, I may be paid for people buying stuff off of this site and the links on here as well. This is how I am able to keep the site up and running.