A share portfolio is just another name for all the stocks you own.
Essentially, a share portfolio is the collection of stocks that you're currently invested in
The key idea behind having a stock portfolio is diversification.
Instead of having all your eggs in the one basket (in this case an individual stock), you invest your money across multiple companies so you're better protected if an individual stock loses value.
If you're looking to start investing in stocks, there's a couple of things you should keep in mind before you begin investing:
Here are 4 of the simplest ways you can start investing in shares:
Part of creating a share portfolio is having a clear investment strategy that you stick to over time.
Your investment strategy should incorporate a mixture of your longer-term goals, your personal risk tolerance and your values as an investor.
When you're looking to add to your portfolio, you should be considering stocks that fit your overall investing strategy.
Say you're looking to build a portfolio of dividend stocks with the plan to live off the dividend income in future.
While you may be tempted to buy a high-growth stock (like Nvidia), it's not really going to help you reach that goal.
"A well-managed share portfolio can be a cornerstone of long-term wealth accumulation and financial security. It can be tailored to fit an investor's individual financial strategy; balancing growth with risk management, as well as aligning with their financial goals and market outlook."
The most popular method of building a share portfolio is through purchasing individual stocks.
As the name suggests, shares or stocks represent a "share" of a company.
Basically, you own a very small part of a company, with your return being based on the performance of the business.
If the company performs well, it is likely over the long term the share price will rise, while poor performance will likely mean the share price will fall.
You make money from stocks the same as you would any other product – by selling for a higher price than what you initially paid.
Alternatively, investors who find individual stock picking too complex or prefer to take a market approach can choose to invest in exchange traded funds (ETFs) instead.
ETFs are investment funds made up of multiple shares or other assets that can be bought and sold on a stock exchange.
Each ETF is allocated an ASX code and can be bought and sold by investors the same way that you would buy and sell shares.
By investing in ETFs, you can easily create a diversified portfolio and spread your investment across a wide range of asset classes.
You can think of them as a shortcut to building a share portfolio.
Much like individual stocks, not all ETFs do the same thing.
Many ETFs simply track a market. For example you can buy an ASX-listed ETF that tracks the performance of the ASX 200 (the 200 largest businesses on the Australian stock market).
Others may track a currency pair, commodity or even a certain sector.
For example, an investor who is interested in lithium shares but doesn't know which one to buy could invest in a lithium-themed ETF instead, like the Global X Lithium and Battery Tech ETF.
| Response | |
|---|---|
| Online share trading platform or online broker | 62.72% |
| Micro-investing app | 20.71% |
| Robo-advisor | 8.28% |
| Other type of investment app | 4.73% |
| Full-service stock broker | 3.55% |
Investors who are unsure of what they should buy but want to gain exposure to the share market could try robo-advice.
A robo-advisor is an online platform or app that provides the same services as a traditional financial adviser.
Using a mix of algorithms and analysis from experts working behind the scenes, these digital advisers create financial plans for customers and automatically manage their investments.
The investment portfolio you receive is based on your financial goals, investment timeframe and appetite for risk. Once your money is invested, the robo-advisor manages your portfolio and re-balances it whenever necessary to ensure it remains in line with your risk tolerance levels.
Traditional financial advice is expensive and the idea behind robo-advisor is that they can give you access to the same professional advice at a fraction of the cost.
The other advantage of using a robo-advisor instead of making decisions yourself is that it removes the emotion from investing that can often lead you to make the wrong decisions.
A managed fund is an investment fund that pools the capital of multiple investors, which is then actively invested by a fund manager who is responsible for the fund's performance.
Managed funds generally have much higher fees than investing in ETFs or buying individual shares, but can offer above-average returns.
It's also a hands-off way to start a portfolio and lets you potentially benefit from the expertise of a professional investor.
However, it's worth keeping in mind that most managed funds actually underperform the general stock market over the long term.
Investing for diversification is a balancing act. Investors want to be exposed to the winners, while mitigating exposure to the losers.
As such, how many stocks an individual needs to invest in to be classified as "diversified" ranges greatly between experts.
Some tell beginners that if you're going to invest in individual stocks, you should aim to invest in 10 to 15 different stocks as early as possible for diversification.
While others think investors need closer to 30 stocks to be protected from downside risks through diversification.
Whether the individual investor chooses 10 or 30 stocks for diversification, is up to them, but either way they should focus on businesses in different sectors.
The ASX classifies stocks into the following 11 sectors with a diversified investor having exposure in a variety of industries.
And while investors do not need exposure to all 11 sectors it is favourable not to have all your money tied to 1 sector.
Remember, if an investor buys all 4 of Australia's largest banks, even though they bought 4 different shares, they all face the same risks and therefore the investor is not diversified.
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