Building a portfolio
Sunday, December 24th, 2006
A common question for new investors, especially those with low investible funds, is “How do I build a portfolio?”. Typically, there are minimum lot sizes for any stock; coupled with the price per share, it does mean that investing in that share requires a certain amount to be committed.
Typically, when you look at market favorites, prices could be quite high - for instance, Google trades at around $400 + per share or IBM at $95 per share. Buying even one lot becomes difficult when you’re starting off, and have small amounts to save every week. And once you’ve done that, 100% of your portfolio is in one stock, not diversified.
There are a variety of solutions; but all of them do have one common factor. You don’t start investing in the high priced stocks, you look at alternatives to keep your money invested and growing until you can add them to your portfolio.
A number of providers offer options to automatically invest in mutual funds - you sign up and arrange to have a predetermined amount withdrawn automatically from your checking or savings account to invest in your mutual funds. You can choose the date, amount and frequency of withdrawals based on your financial objectives.
A few online stock brokers also offer a similar option for direct investment in stocks, rather than through a fund. Sharebuilder has a list of penny stocks and exchange traded funds that you can select from, for an automatic portfolio building strategy.
A third option is to save up until you have sufficient funds to invest in a particular stock directly; over time, with regular savings, you could plan on diversifying your portfolio.
Whichever option you choose, remember this is for the long-haul; this isn’t an “in today, out tomorrow” kind of investment approach.
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