Most investors choose the investing style that suits their own financial situation and start looking for specific companies that would let them meet their individual financial goals.
In creating an ideal stock portfolio, some things are considered :
- Your investment timeline
- Your own personal risk tolerance
- The time that you want to spend managing your stock portfolio.
Rules in investment.
- Never invest what you truly can’t afford to lose. If you have ten thousand in your total savings, don’t put all in your investment portfolio. Keep a portion a side at all times.
- Find the risk reward balance. The longer your investment timeline, the more of your savings you can put in higher returns, higher risk assets. The longer you have till retirement, the longer your investment timeline
- Do what feels right. It’s a personal consideration that requires a lot of tolerance. Consider your own situation and invest accordingly.
In investment, we cansider the size of the company. We have small, medium and large companies.
Small companies are companies with less than one million in market capitalization. They generate revenue from core products and are exposed to specific smaller market. They may find it harder to secure loans from banks or might attempt to grow quickly taking more debts than they can handle. They often bring new products in the market, however, they can achieve astonishing growth rates.
Large companies are companies that have greater than ten million in market capitalization. They have more mature growth phase,stable growth,lower risk and potential for high growth in innovative companies.
Medium companies are companies with one to ten million in market capitalization. They bridge or fill the gap between small companies and big companies.
Investors who have longer investment timeline can shift more of stocks to small and medium companies and less to larger companies all of which promises higher returns than bonds and savings.
Investors who have shorter investment timeline should put more of their stocks in large companies and less in small and medium companies.
Types of stock investment.
Value investors look for companies with stocks that are undervalued relative to their intrinsic value. They consider the assets, current earnings and company’s product. They have low price to earnings ratio (P. E RATIO) because the company is valued low by the market relative to its recent profit.
Growth investors focus less on the existing asset and earnings of the company and look specifically for earnings momentum and products offered by a company. They look for companies with higher earnings and growth I.e higher P.E ratio. Growth stocks are in small and medium companies since large companies have reached their maximum stage.
Income stocks are stocks in companies that give out a large share of their profit as dividends. Dividends are distribution of company profit to shareholders. They are usually in large established companies.
Dividend payment=dividend declared*shares you own.