This article on how to manage a stock portfolio for beginners contains; research tips, important points in managing a portfolio, rules to trade by, recommended online brokers, and a checklist to follow for beginning investors at the end of the article. - Many investors choose to have a financial advisor to handle their stock and investment portfolio. As a financial advisor in training I would agree to this statement only because I would want your business. No investor needs a financial advisor. If you have over a hundred thousand dollars and would like to get involved in investing you should definitely seek some professional advice to protect your money. If you are an average working man/woman then you should try investing on your own. Anyone over the age of 18 can trade stock, and should. I have learned many valuable lessons (such as patience) through investing. Anyone can manage a stock portfolio. Anyone can drive a car also, but it doesn't mean you won't hit a tree or slide off of the road every once in a while. Successful investing takes discipline, skill, money, and lots and lots of research.
Best Places for Research (Free)
Practice makes perfect. Research and "mock" investing are the best ways to make sure you are headed in the right direction. Mock investing is fun and can lead to success in the actual stock market. Mock investing with research is the best "training" you can get to succeed. Don't underestimate the value of practicing before you take the plunge into actual investments. Here are two great free places to get started researching and mock investing.
Yahoo.com/finance
Yahoo Finance is my favorite place to create mock portfolios and track their performance. This is a good way to start before you invest actual money. You can enter in purchase prices of stocks and track your gains or losses. Yahoo provides free charts, company information, and more.
Motley Fool Caps
The place where the voice of the people reins king. User's rate stocks, give recommendations, and explain why the stock will soar or fall. A good place to find stocks to watch is the top rated section of Motley Fool Caps. I have found several solid companies from user recommendations. This site also allows a user to create a portfolio and tracks performance. You can compete in contests against all of the other users and their stock selections.
Invest Online
In the internet brokerage world it is very easy to setup an account, transfer funds, and purchase a portfolio worth of stock in a matter of days if not hours(2 recommendations for online brokers are located near the end of the article). After choosing an online stock broker you have the task of transferring money to your account which is extremely simple. Automatic transfers, direct deposit from your employer, and mailing a check are a few of the many options to fund your portfolio.
Important Points in Managing a Stock Portfolio
Learn How to Read Financial Statements
A very important part of researching companies to invest in is to read their financial statements. This seems like a long and boring task when all you want to do is get in the action and make some trades, but is necessary to become a successful investor. The U.S. Securities and Exchange Commission (SEC) provides a lot of information on it's website to beginning investors. There is a great article on Beginners' Guide to Financial Statements that gives a beginner a good understanding of financial statements and how to read them.
Track Company News & Earnings Reports
As a parent is concerned with his/her children's report card grades, an investor should be as concerned and interested in company news and earnings reports of stocks they hold. A piece of good news or bad news can change your entire investment within minutes. On yahoo finance you can set alerts for any news that comes out about one of your company's stock. Much like reading financial statements, learning what to make of earnings reports is not easy but very important. Here is a great article on how earnings reports are important, how they work, and how to read them.
Set Goals
Most investors don't enter the market for pure fun. Whether you're investing for your children's college fund or a new set of golf clubs write out your goals. If you are constantly reminded of why you are investing it will help keep your thoughts focused on your goals. It is good to set monthly and yearly goals. A goal I try to set for myself is to earn over 10% a year, which is considered to be the average return of stock investing.
Don't Repeat Mistakes
When I first started investing I focused my research and money on penny stocks. I now know that penny stocks are the most unpredictable investment (more like high stakes gambling). Investing in penny stocks in the world of financial investments is similar to playing Russian Roulette at your family board game night. Several trades into penny stock investing I quickly learned my lesson and lost my money.
The key to anything in life is learning from your mistakes. A good thing to do is keep a log of the bad investment choices and the good ones and refer to this oftern before making your next stock purchase. Even the best of us mistakes, but the best do not make the same mistakes again.
Get Over the Woulda Shoulda Coulda's
This is one that I am not personally capable of. Every day I think of opportunities missed and mistakes that cannot be reversed. The one that always gets me is Jones Soda (JSDA). I first purchased shares of JSDA at .25 a share. I put just $500 in the stock as I knew it was risky. Nearly a year later I sold all of my shares at $3 making a nice profit of $5500! There was no logical reason to sell but I did. A year and a half later the stock peaked at $30 a share!!! Its hard dealing with the fact that I missed out on $60,000 but it is something that is important to forget so you can move on and find the next great investment. Also this is a one in a million shot as most penny stocks fail and not flourish such as Jones Soda. Focus your regret on your research and not on "what if".
Rules to Trade By
Diversify
You know the saying "don't put all of your eggs in one basket". This rule applies heavily to investing. You want to invest in different sectors, different capitals (Large caps, small caps, etc.), and in different countries. A good plan is to find the top performing companies in each sector, country, and capital to track in a mock portfolio. Diversifying is important because at any given time a sector, or country can take a substantial hit that could severely damage your portfolio. An extreme example would be if you only owned oil companies and the world ran out of oil. If America is in a recession then focus in thriving countries around the world. Many companies from other countries are traded publicly in U.S. exchanges. You most certainly don't need one stock in every sector and/or country, but a decent mix will prove to be beneficial to your portfolio's value.
Think Long Term
If you are investing in stocks to become instantly rich, then you will soon learn that this is not an easy task. Even the best company's stock can suffer during a recession. Investing long term will help to balance out the bad times with the good times. Don't buy a stock because it will go up today, buy a stock because it will succeed over the next 10 years. If you think long term when making your selections, you are already ahead of most beginning investors.
Start with Large "Blue-Chip" Companies
The smaller the price the more volatile. If the price of a stock is low, that doesn't mean it's cheap, it means it's risky. Start with larger companies whose price is usually around $40-100 a share. There are exceptions to every rule and there are many small cap stocks that will skyrocket. But as you are beginning to learn the stock market, stick with the more established and hopefully stable companies.
Set Stop Loss
Unless you are investing with a very small and forgettable amount of money, you want to protect your equity. A good way to protect yourself from losing most or all of your investment is to set a stop loss. You should set a stop loss at a point where you would be losing 15-20% of your total investment. Although it is very important to invest for the long term and keep your money in your investments, a loss has to stop somewhere. I have had positions fall 60% in the matter of a week or two simply because I did not set a stop-loss. Then I face the tough challenge of whether to hold on and pray that it rebounds or sell and take a substantial loss.
Example: You buy Visa (V) at $75 a share. $75 divided by 1.15 (15 percent) is $65. In your portfolio next to the listing of Visa stock you would click on sell. When the sell screen comes up make sure to select sell limit (some brokers have a selection that says stop-loss, others don't). Once under sell limit you would simply enter $65. The trade will not happen unless Visa went under $65. The reason you want to do this is to protect your money in case of a major sell-off in that companies stock.
Don't Get Trigger Happy
My biggest problem when starting an investment portfolio at the age of 18 was making rash decisions and then changing my mind soon after making them. It got to the point where it didn't matter how good my trades were, my fees from excessive trades were more than I would ever make from stock performance.
Keep your positions to 20 or less to start with-
It is important to put a cap on your active positions. A good number for a portfolio is between 15-20 stocks. The 15-20 does not include mutual funds or ETF's that you may be holding for decades and do not actively watch. The stocks in your portfolio should be monitored often, and because of this it is important to limit your investments.
Recommended Online Brokers for Beginners
An online broker is the way to go. Stock investing online is cheap and simple. Actual brokers can charge upwards of $50 a trade. Online brokers leave most of the research and work up to you but offer easy simple trading at a very affordable price. Here are the two best online brokers for beginners based on my experience.
Scottrade- $500 account minimum is lower than average, $7 market trades. Scottrade has very good customer service and offices in most states where you are assigned a representative who can help you with any issues or concerns.
Sharebuilder- The best site for beginners hands down. No minimums and you can invest for only $4 a trade if you use the automatic investment plan. You can invest a certain amount in an investment instead of a certain number of shares. Depending on how you invest there are fees monthly or yearly.
Checklist
- Research first. You need to spend a significant amount of time researching stock trends, charts, and financial statements before investing.
- Mock trade. Set up a Yahoo Finance account, and create a portfolio and track the performance of stocks you pick.
- Set up an online broker account ( Scottrade, Sharebuilder, etc.) Research fees, trade limits, etc.
- Transfer money into account (Start with between $1000-5000 if available, until you get your feet wet)
- Research More! Check out ratings of companies on different financial websites. If you are sold on a company, try to find reasons it will fail. If you cannot find reasons it will fail then you may just have something.
- Start investing. Make a few trades and track them closely. If you make a few dollars, don't get excited get cautious and protect your investments with stop-loss trades.
- Monitor stocks at least twice a week, track news.
- Hold your positions. Don't profit-take unless there is something that warrants it. If negative company information is revealed, then protecting your equity by selling your stock is the right thing to do. Just be careful of selling your stock for no reason.
Now get started, have fun, and learn from your mistakes. The stock market can be overwhelming and has crippled many egos. Do your research and know why you are investing in a company before you hit the "finalize trade" button.
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