(2) Decide Your Investment Style
It is one of the most critical steps to build a well-balanced stock portfolio. As stated earlier, every investor has different risk tolerance from one another.
Investors need to purchase stocks that meet their investment needs. Different stocks can have different levels of risk associated with them. As a rule of thumb, more risky the stock, higher will be its potential rewards.
Investors need to select a model portfolio ranging from conservative to aggressive. Conservative investors tend to protect & maintain the value of a portfolio.
On the other hand, aggressive investors tend to take higher risk with hopes to gain higher rewards. Investors can assess their risk tolerance using various online risk assessment tools.
Sometimes, your financial goals may change with time. In such a case, you need to adjust your portfolio accordingly. Generally, younger the individual, more risk he/she can afford or is willing to take.
Thus, younger generation may be better served with a growth-oriented portfolio as compared to older generation.
[Read Also: 11 Ways Luck Can Help To Make Money In Stock Markets]
(3) Divide Your Capital To Meet Your Investment Style
It is one of the most wonderful steps to build a well-balanced stock portfolio. Once you have decided about your investment style to be adopted, you need to buy stocks accordingly.
For example, investors looking to make conservative portfolios should prefer to divide their capital among less risky stocks. Similarly, investors looking to make aggressive portfolio should prefer to divide their funds among highly risky stocks.
Generally, it will not be a wise decision to invest all funds in a single stock. You need to divide your capital among different stocks or sectors. It is because at any given time market & economic conditions are likely to benefit few companies or sector more than others.
Investors should better divide their capital among stocks depending on sector & market capitalization. As a general rule, investors should invest in a particular sector up to a weighting of 5 percentage points.
It is a sure-way to lower your portfolio risk & give you a peace of mind.
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