An ideal portfolio is always a hot topic of debate among investors. These basic rules to build a solid and profitable stock portfolio are quite helpful.
Everyone knows that putting all eggs in one basket is not a wise decision. This popular concept stands true even when you want to build an outperforming portfolio in stock markets.
Researchers often recommend diversifying portfolio by selecting best stocks from different sectors.
According to a post published in CNN, a well-diversified stock portfolio should consist of 15 to 20 stocks, across seven or different industries.
This range allows investors to keep track of each stock quite effectively. Of course, there is no guarantee that your selected stocks will outperform in the market. But, it can perhaps minimize the risk of losing money in an untoward economic situation.
You just need to follow certain rules when forming a perfect portfolio. Here are 18 basic rules to form the best & strong stock portfolio:
[You can also watch an exciting video on this post from GetUpWise channel on YouTube.]
(1) Diversification Is The Best Way To Minimize Risk To Your Investment
It is one of the most unbeatable rules to build a solid and profitable stock portfolio. Stock markets usually consist of huge range of stocks ranging from small cap to even large cap stocks.
These stocks may belong to seven or different industries. Out of these, some sectors will always perform well while others not. Similarly, some sectors could be more risky while others could be less risky.
Your rewards are likely to be more when risk is also high. But, you can’t invest all money in a single stock. Therefore, diversification across different sectors & market cap groups can minimize risk to your investment to a significant extent.
Investors should always diversify their portfolio among 15 to 20 stocks depending on their risk tolerance. It will help you to derive maximum benefits at predetermined levels of risk.
Image Source: Shutterstock