How to build a stock portfolio

A good long-term investor should think in terms of planting trees, not throwing darts. Over time, that first stock should grow into a basket of great companies that represent what you believe and where you think the world is headed.

In order for that to happen, you have to keep saving and keep investing.

Every investor has their own way of building up a portfolio, but I’d tell you about an imaginary Joe’s stock portfolio. Joe is a young man in his mid twenties who recently got a promotion at his office. With his increased earnings, he feels the need to cultivate a habit of saving and investing. Joe identifies the US stock market as the place he wants to trade and downloads the Bamboo app to get started. Bearing in mind that he is young and has no current dependants, he believes that he is able to be aggressive with his portfolio and take on risks. He developed his own investing strategy with the goal of attaining financial freedom in 20 years time via consistent and continuous investments.

Let’s take a look at Joe’s portfolio:

Joe decided to divide his portfolio into 3 segments; Long Term (60%), Speculative (20%)  and “Sure Points” (20%).

• The Long Term Section: Bearing in mind that he is young, he builds his portfolio with 60% of stocks that he deems as “undervalued” at the moment and as good prospects for the future. These are stocks that he is in no hurry whatsoever to sell, he intends to hold onto them for a period of at least 5 to 10 years. After conducting his research, he believes that these stocks are good ones for the future and are low to medium risk investments.  He will continue to hold onto and purchase more of as time goes by regardless of the prevailing market conditions (i.e come rain come sunshine).
• Speculation: The next segment of Joe’s portfolio feeds into his desire to take risks, the High Risk – High Reward mantra. This section accounts for 20% of his portfolio. They are stocks that He knows little to nothing about them or their financial situation. For these companies, Joe has not performed the level of research that he would typically perform on a company’s stock to determine if they are short term or long term investment. They consist of stocks that he purchased maybe because he heard a friend talking about it or because they were mentioned in the news. These stocks, he makes his judgments on them based solely on the stock market’s behavior. If the price for a speculative stock rises, he will sell off and cash in and if the price begins to fall, he will sell off and cut his losses. Some reputable investors say that you should never invest more than 20% of your available capital on speculative investments and Joe totally agrees with them. From this advice stems a mistake that most investors make, rather than apportioning a small percentage of their entire portfolio into speculative investments, they tend to invest the majority of their capital into speculations, they do this in search of High Returns in a short time span. Don’t do that.
• Sure Points: Sincerely, there is no such thing as a “sure point” or a “completely safe” investment. Nonetheless, this is the percentage of Joe’s portfolio that consists of low risks investments such as ETFs, bonds, mutual funds, dividend-paying stocks and stocks of companies that have a long and proven track record of delivering consistent gains. These stocks tend not to be as affected by market fluctuations and are a part of Joe’s stock portfolio as a capital preservation method, in which He expects the least gains in.

The example above is built around an imaginary Joe, it is simply for explanatory purposes and is not a “one size fits all” recommendation on how to build your own portfolio. For example, if your current situation or goals do not allow you to take on risks, that is totally fine, you might then choose to make the majority of your portfolio “Sure point” investments, rest of it long term stocks and leave no room whatsoever for speculative investments.

Depending on your age, your level of financial literacy, the type of investor you are, your appetite for risks, and your investment goals, you can build a solid portfolio for yourself. You need to assess these things and then set what percentage of your capital goes into what segment of investing.

With that in mind, fund your Bamboo wallet and begin investing today! Chart the course to your financial goals right from today!