You may be wondering, “What is a stock portfolio and how does it work?” We work jobs to earn income.
We use this money to pay our monthly bills and to spend on food, car repairs, and even dining out and entertainment to enrich our lives and that of our families.
Financially-savvy people (which we should all be) will regularly save money for emergencies and for future needs, purchases, and retirement.
Once a budget and a savings plan are in place, it’s time to invest in financial instruments and make your money grow and make more money.
What Is an Investment Portfolio?
Money can be invested in different types of growth products.
An “investment portfolio” is a basket of growth products, including bonds, certificates of deposit (CDs), real estate properties, commodities and stocks.
What Is a Stock Market Portfolio?
Different stocks can be combined to comprise a “stock portfolio.”
A basket of stocks carefully selected to compliment each other and to provide hedging for downside protection is the way to go.
How Do I Make A Stock Portfolio?
You will want “diversity” in your stock portfolio, meaning it will contain stocks that are in unrelated industries, and stocks of companies in different stages of their business.
Growth Companies
Some companies are considered “growth companies.”
These companies are expected to have increased sales and expand their business as time goes on. You’ll want to buy and hold a few of these types of companies.
Small Companies
There are other companies whose products can create a paradigm shift in the way people do things.
Consider how a small start-up company called MicroSoft changed the way businesses work, as well as changing education and the way people do things (think about how email has replaced mailing personal letters).
Some company products are “disruptive technologies” in that they can change an industry. Consider how personal computers have killed the manufacture of typewriters!
Companies With the Potential to Explode
There are also companies who may be small now, but who have great potential to explode. These are “value stocks,” so called because their current stock price is below what analysts believe is a fair price.
The stock prices of these companies are expected to rise as more analysts, institutional investors, and “the crowd” realize that the current stock price is a bargain for a good company.
Buying stock in these can be somewhat risky, because it may take a long time before their true value is realized by the masses and prices rise. However, they can rally fast, making explosive gains.
Well-Established Companies
A stock portfolio should also contain shares of some huge, well-established companies who have been around for a long time.
These companies typically pay regular dividends to shareholders, such as Coke-a-Cola (ticker symbol KO).
These companies are in your portfolio to add income to a portfolio, regardless of whether the company’s stock price goes up or down.
They are not stocks that are bought in anticipation of high stock price appreciation, but for accumulating income from dividends.
What Is A Good Stock Portfolio?
A key ingredient to having a good stock portfolio is for it contain stocks in a diversity of industries and industry sectors.
Examples include technology, health care, real estate and utility companies. At different times, various sectors will become in and out of favor with investors.
Diversification helps keep a portfolio from sustaining large losses, since when one sector is down, others may be unaffected and may even be increasing.
As we explained above, a good stock portfolio should contain value stocks, growth stocks and dividend-paying stocks.
Building a Stock Portfolio on Your Own
Building a stock portfolio on your own can be difficult to do, but it can be a lot of fun and exciting, if you enjoy a challenge, doing research, and closely following the stock market.
Starting the Portfolio
You can start by purchasing just a few shares of as many companies as you can, making sure the portfolio is well-diversified by industry, growth, and dividend-paying stocks.
Keep in mind that you are buying stocks that you intend to hold for several years. You must have patience and learn to ignore the short-term ups and downs of the market, which can, at times, be very volatile.
Perhaps you will want to have several small stock portfolios, each with a different goal or purpose, such as an income portfolio made-up of high dividend-paying stocks, or a growth portfolio that invests in younger companies who have products or services with potential growth and stock price appreciation.
Building the Portfolio
You might even build a stock portfolio with “Exchange-traded Funds,” or “ETFs.” These products are traded on stock exchanges just as stocks are, buying and selling shares.
An ETF is a basket of stocks, rather than just one stock, which represent an industry or sector. This lowers your risk to any one particular company.
ETFs are highly traded, making them very “liquid” and so are easy to buy and sell. Some ETFs track the market; ticker symbol SPY, for example, tracks the S&P 500. ETFs can track particular industries;
XLE is a bundle of energy stocks, comprised of such companies as Exxon Mobil, Chevron, and ConocoPhillips. Each company makes up a different percentage of XLE.
Some ETFs track commodities, such as gold, corn, or oil. GDX is a holding of gold miners that includes Barrick Gold Corp., Wheaton Precious Metals Corp., and others.
Short-term Portfolios
“Investing” for the long-term is different than “trading.” Many like to buy and sell stocks and ETFs in a short time span, attempting to make a profit from the ups and downs of the market.
“Swing traders” buy stocks with the goal of closing them in a few days or weeks to capture a short-term move in a stock’s price. Of course, they must be right about the directional movement of the stock to be successful.
“Day traders” buy and sell stocks intraday. Short-term trading requires a lot of time, knowledge and luck. Such trading can be exhilarating and even profitable, but trading without sufficient education can quickly empty wallets and pocketbooks!
Options trading, another type of short-term trading, is very popular today. Portfolios of options require an understanding of option mechanics such as “delta,” as traders want to keep their portfolios neutral in regards to market direction.
All of this requires a great deal of study and experience, but can make profits faster than long-term investing, however, with more risk.
What Are Some Examples of Stock Portfolio?
While we may share a few examples of some stock portfolios here, it is important to remind you that you must do your own research, and not build your portfolio off of someone else’s.
Warren Buffett Stock Portfolio
Typically, Warren Buffett is known for buying stocks and holding them long-term. With the market the way it is right now, he has shed a few stocks in favor of some others.
According to Investor’s Business Daily, here are a few of Buffett’s top stocks as of the time of publication:
- Bank of America (BAC)
- Apple (AAPL)
- Coca Cola (KO)
- Verizon (VZ)
- Kraft Heinz (KHC)
Jim Cramer Stock Portfolio
The host of Mad Money on CNBC, Jim Cramer, is another stockbroker that many investors pay attention to.
According to Yahoo! Finance, Cramer’s top picks at the time of publication include the following:
- Johnson & Johnson (JNJ)
- NVIDIA (NVDA)
- Microsoft (MSFT)
- The Boeing Company (BA)
- Honeywell International Inc. (HON)
Is Having a Stock Portfolio Good?
While having a stock portfolio is good, be aware that there may be commission fees when buying and selling stocks, depending on the brokerage firm. Fees can eat into profits.
Also, the amount of risky stocks you include in your portfolio depends on the time you have available.
Younger investors have the time to buy and hold stocks long-term, and to include value stocks and growth stocks.
Retired investors may build income portfolios with high dividend paying stocks and less exposure to stocks bought for share price appreciation.
Consider meeting with a financial planner for guidance in setting up a stock portfolio. You may want to have a professional handle a stock portfolio for you, while also learning and investing on your own.
Knowledge is important to help you keep on top of your financial investments, and that includes paying attention to any stock portfolios you have financial planners controlling.
Do you have a stock portfolio? If so, share a few of your stock picks in the comments below!