You’ll hear a lot of stories about the journey of successful investors. When you do, you’ll feel inspired to create your own portfolio from scratch. However, stock market investment isn’t as easy as it seems. Many people don’t know where to begin.
Things You Need to Know in Stock Market Investment
Two Scenarios When Building an Investment Cost
There are two situations that you need to consider as you begin your investment journey.
The first situation involves a lump sum of cash. Let’s say you got a huge inheritance and you invest all that money at once
The second one is the dollar cost average. It involves putting in a certain amount of money every week, every month, or whatever schedule suits you best. You gradually increase your investment.
Two Investment Types
There are two types of investments that we need to consider. The first one is the exchange-traded funds (ETF) and the second one is individual stocks.
When you’re building an interesting portfolio, it’s best to combine individual stocks and exchange-traded funds.
If you’re interested in ETFs, then that would be perfect for dollar cost averaging. It’s the best option if you don’t have the time or perhaps are unsure or not confident in your skills in choosing individual stocks.
When you invest in an ETF, it’s just like owning 500 different stocks. Now, that means your portfolio is already diverse with just one investment. So, when you choose an ETF and the dollar cost averaging, you will be putting in money in your preferred, well-diversified ETF, whether it’s weekly, monthly, or quarterly.
What if you want to add dividend investments? Then you should look for a dividend ETF.
What about inflation? If you’re worried about this, then you may want to add a commodity strategy EFT to your portfolio.
Now always remember that this is just one of the many ways to start your investment portfolio. But it’s an easy method that you can follow especially if you’re new to the world of investing.
Combination of ETFs and Stocks
Now, what if you want to invest in ETFs and stocks, too? If you’re thinking of investing in VOO, you can add tech stocks like Apple, or other stocks that are undervalued. When you build a satellite portfolio, you will have a particular investment that holds a bigger percentage of your overall portfolio.
For example, your ETF accounts for 80% of your overall portfolio. Now, all the other stocks that you want can be divided among the remaining portions of your portfolio.
This strategy allows you to dip your toes in the water when choosing individual stocks while maintaining a core holding in your portfolio. Now, this strategy is ideal for a lump sum portfolio.
You don’t have to wait to have a large sum of cash before you can invest. Even if you only have $50, you can start investing in individual stocks. However, you need to do your research well. You don’t have to get diversified right away. It’ll happen eventually as you invest more and choose other well-performing yet undervalued stocks in the market.
You shouldn’t be caught up in the hype stocks that are in the market today. So, if you want to build your investment portfolio and you’re buying overpriced stocks then the market pulls back, then that would really hurt your portfolio.
But when you start building your portfolio using dollar cost averaging on a name-by-name basis, it’s going to be a different story. Let’s say, you buy your first stock. If you look at your portfolio, you’ll notice that it’s very undiversified.
However, that’s alright because you’re just started. Over time, you’ll add more stocks to your portfolio and these positions will help diversify it. You’ll eventually reach a point when your portfolio will become well-diversified.
You can add $100 a month and choose a different stock to invest in as long as there are good investment opportunities. Just remember, always go for stocks that offer good value. You’ll do quite well in your investment journey if you choose only the best-value stocks to add to your portfolio.
That’s all for today. Thank you for staying with me until the end. Don’t forget to hit the like and share button. We always do our best to create valuable content to help you learn more about investing. You can check out also this relevant articles such as “How To Invest and Pick the Right Stock“.
Thank you for reading this blog. And until next time, always stay very motivated! See you in our next investing blog.
Recommended books for further reading:
- Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!
- How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology
- Investing QuickStart Guide: The Simplified Beginner’s Guide to Successfully Navigating the Stock Market, Growing Your Wealth & Creating a Secure Financial Future
- The Five Rules Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market
- Shares Made Simple: A beginner’s guide to the stock market
If you are looking to open an investment account, follow the links below:
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