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The Anatomy Of A Portfolio

When constructing the blueprint to your portfolio, there are a few tips to consider to prevent overspecializing your selections. Follow this commonly heard advice all in one package.

1. Balance risk.

Generally, you want to put some risk into your portfolio in order to actually have a chance of making a profit. Generally, the higher the beta of a stock, the riskier it is to invest in it, but ensure your risks are controlled and carefully well-thought out. However, do not make all of your selections ridiculously risky in such a way that a $50,000 portfolio is valued at $120,000 within the first month and then plummets to $40,000 in the next. At the same time, if you pick solely low-risk stocks, your portfolio's value will move so slowly that you will not get much excitment and more importantly, profit. The ideal portoflio will have an average beta of around 1.00.

2. Check the charts.

This one is common sense: never invest in a stock based on market currents alone; always look at a chart first, to ensure the stock is not doomed to plummet 25% the next market day.

3. Variety is vital.

Never make all of your investments in the same sector--it is too risky, even if the sector is generally stable. If one stock drops, the others are likely to follow, resulting in a heavier loss to your portfolio. If you strongly believe in one stock, just put more shares into it.

4. Check the market regularly.

It is also crucial to check your portfolio every day in case you need to make a quick sell before an oncoming crash or a very high potential offer appears--fast acting is crucial in the rough waters of the market.

Overall, these four bits of advice should regularly considered when playing games in the market.