December 1st, 2008

Building Your Portfolio

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If you are interested in investing in the stock market, one of the first things you are going to need to do is to build your portfolio. We highly recommend contacting a knowledgeable broker that is seasoned in investing if you are going to get serious. While there is nothing wrong with day trading on your own, there is a lot of risk involved, especially if you have no idea what you are doing. Working with a financial advisor or a broker is vital for those that have no experience in the markets.

You’ll need to first decide how much money you are willing to invest, and then develop both some short and long term goals. For example, if you have $1000 to invest, you’ll need to figure out how much money you would like to have in six months, one year and five years. These goals can be used as a guide to help you find the best stocks that will help you meet those goals. Remember, the stock market is a risky business. You should only invest money that you are prepared to lose.

Now that you have your initial investment funds ready to go, you’ll need to decide what industries or stocks you are interested in. Every market will fluctuate, and while some stocks may look promising today, they could end up as penny stocks tomorrow. You’ll need to do quite a lot of research before you jump in to avoid getting burned. The dot com boom and bust is the best example of what can happen with promising stocks.

The first place to start your research is in the financial pages, money magazines and publications like the Wall Street Journal. There are also many great resources online that can help you track stocks before you actually invest, as well as learn more about the background of a company. Google has a great tool that is incredibly useful for this purpose and it is free to use.

Target the stocks you are interested in and you can begin building your portfolio. As with most things in life, you’re going to need to be diversified. Never put all of your eggs in one basket, or in this case, industry. For example, if you are heavily invested in tech stocks and the bottom drops out, you will have lost your investment. If you were invested in tech stocks, as well as many other industries, you’ll have spread that risk out a little more.

For those looking to build a very diversified portfolio, ETF’s are a great initial option that allows you to invest in many different industries without having to buy individual stocks. These are managed funds that can provide great short term results, but they are still quite new, so long term data is not yet available.

Once you have built your portfolio, you’ll need to monitor it to see how your different stocks are performing. You can use your goals as the yardstick to measure performance. If something isn’t performing up to expectations, you’ll have the option of selling that stock and figuring out which ones will perform better for you.

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