A Stock Portfolio is referred to as the digital space where you have all your stock investments. It is the collection of stocks across industries and sectors, in which you have invested. A good stock portfolio refers to one which has an adequate number of stocks according to your investment goals and risk appetite. If you want to build a good stock portfolio, you need to follow certain steps and investments accordingly.
- Assess your Risk Appetite and Return Expectation
The first and foremost step in building a good portfolio is assessing your risk appetite. There are thousands of companies listed on the stock exchange. While some of these companies are considered less risky, others are considered risky. The return potential also changes according to the risk factor. So, if you are an investor looking for aggressive returns and have the appetite for taking on huge risks to earn that return, you can invest in the growth stocks/ stocks of new companies and startups. On the contrary, if you are a risk-averse investor looking for a moderate return, you can go for mid-caps or large caps companies generating average returns over a long duration.
- Define your investment goals
The second step after assessing your risk appetite and return expectation is understanding your goals for investment. If you build a portfolio with all large-cap stocks but your investment goal is for buying a car in the next 2 years, then your portfolio is not suitable for your investment goal. For short-term investment goals, you need to choose stocks that can give you higher returns in a shorter span like growth stocks. In the era of online stock trading, you can easily find out the companies which have the potential to grow exponentially in the near future.
- Opt for Top-Down Approach to Investing
Thirdly, you need to analyze the economy, the sector or the industry, and finally, the company where the stock belongs. Once you know your risk appetite, return expectation, and investment goals, you must analyze the economic condition. Then accordingly, figure out which industry can be perfect for investing for your desired return. Suppose you want aggressive returns in the next 3-4 years; some sectors that can provide you with that return are Fintech, Infra, Real-estate, and others. Now, once you know the industry, you need to find out the company performing well in that industry. However, it would be best to keep in mind your risk tolerance level while selecting the company and investing in its stock.
Finally, to build a good stock portfolio, diversification is a necessity. Without proper diversification, an equity portfolio can be way too risky. With appropriate diversification, you can mitigate the risk of investment to a great extent.
Earlier, investing in stocks and building a good stock portfolio was a tough job. However, with the help of a stock trading app, trading platform, tools and resources, it is becoming a lot more smooth and easier even for retail investors.