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Portfolio Management

Do THIS…Your Portfolio Will Thank You

You’ve probably heard the phrase, “don’t put all your eggs in one basket,” right?

It’s a phrase that’s rooted in risk management, which makes it perfect for the stock market.

That’s because stocks, being as volatile as they are, tend to move with their sector. Meaning that if you have 10 stocks, and they’re all technology stocks, you’re doing nothing to hedge that risk. They’re all in the same sector, and are subject to swings in market conditions.

Just like you shouldn’t put all your eggs in one basket, nor should you put all your stocks in one sector — the key is to diversify your portfolio.

A well-balanced portfolio that can help you diversify your risk profile and potentially reduce your vulnerability.

Keep reading and I’ll explain how to get one set up!

What is a Stock Portfolio?

Quite simply, a stock portfolio is a collection of stocks held by institutions or individuals. The stocks held within your portfolio are referred to as positions.

A portfolio can have any number of positions in it. You could have 10 stocks, spread across sectors. Or the portfolio could contain other asset types, such as mutual funds and ETFs.

Who Needs a Stock Market Portfolio?

If you’re interested in investing and trading stocks, then you’ll need to have a stock market portfolio.

And don’t worry, you don’t have to do anything to create your portfolio. The stocks you trade through your broker make up your stock portfolio.

If you buy a stock, it’s added to your portfolio. When you close out of the stock, it’s gone from your portfolio and now considered a “closed position.”

Importance of Building a Balanced Portfolio

A balanced portfolio is also known as diversification, because you’re diversifying your investments.

Diversification is very important.

You don’t want the bulk of your investment tied into one stock or sector!

Can you imagine if a fund manager only had one stock in his portfolio? He’d be fired for being so careless with money, and he’d likely underperform the S&P 500, which is considered the benchmark.

How To Balance a Stock Portfolio

To keep a balanced portfolio, you’ll need to place your investments across a variety of stocks and sectors.

If you’re day trading, this requires focus and active daily management of your portfolio. Your goal is to get in and out of stocks to reduce your exposure to volatile stocks. If a stock isn’t moving your way, then you need to quickly get out of the position.

A balanced portfolio isn’t a “set and forget it” strategy. As a trader and investor, you MUST look at what the market is doing every day. That’s why you often need to “rebalance” your stock portfolio.

This means that you’re reducing exposure to stocks and sectors that are underperforming, and increasing exposure to stocks that are outperforming the broader market.

What You Should Have In Your Online Stock Portfolio

Your stock portfolio should have the following information:

  1. Company name and symbol
  2. Current price of the stocks you own
  3. How many shares you own
  4. Your cost basis
  5. Total gain/loss
  6. Total value
  7. 52-week high/low
  8. How much cash you have

Got it? Good. Now let’s take a look at the different kinds of stocks you can have in your stock portfolio.

What Are The Best Stocks To Have in Your Portfolio?

If you’re looking to buy stocks and have a relatively passive management strategy, look for large-cap stocks with high floats (typically at least 5 billion shares).

This means that you’re buying shares of big companies that don’t have volatile prices — which means you won’t have to check the stock price movement every day.

As a bonus, most of these companies have healthy cash flow, which they return to shareholders in the form of dividends. So you can earn money in two ways with these stocks: dividends and share price growth.

For active traders, stocks aren’t held for more than a few days. Some traders execute 100 or more trades per day! The best stocks for these traders change on a minute-by-minute and hour-by-hour basis.

However, some of these traders still maintain “long-term holds” in which they buy a stock and plan to hold it for years.

Volatile and Low Priced Stocks

Many low-priced stocks, AKA penny stocks, are cheaper than $5/share. They’re very volatile and subject to wild swings in price.

That volatility is great — if you can profit from it. It’s bad in other cases if you’re not an experienced trader and aren’t skilled in risk management.

These stocks aren’t good for long-term holds, because the underlying companies are junk (but you can potentially use that to your advantage).

The companies don’t have much cash on hand, have drastically declining sales, and some don’t even have any revenue.

When companies don’t have a lot of cash, they’ll raise money via the market. That dilutes everyone’s shares and drops the share price.

It’s for this reason that penny stock traders only hold their shares for the day. Some brave ones may hold them overnight for a swing trade.

Add to Your Investments on a Regular Basis

If you’re holding your stocks over the long term, you’ll need to review them a few times a year.

That’s your “check in time” to see what the price has done, and search for new opportunities.

If you’ve gained a large amount on an investment, you may want to start “trimming” that position and using the proceeds from that investment into a new stock.

When you add an investment, make sure you aren’t adding to something you’re already heavily weighted toward. For instance, if you have 10 stock investments, and 7 of them are in the health care sector, do you really want to add another health care stock?

Probably not. So look for some other sectors that you think will perform well in the future, and then find stocks or ETFs to add.

Think of ETFs as being a group of stocks all placed into one fund. And you can buy that fund which has that group of stocks. These ETFs are less volatile, which can make them great for beginner traders that can become scared off by rapid (and sometimes extreme) price movements.

Keep a Watchful Eye on Commissions

As a trader, the biggest cost you’ll have are commissions. Most brokers charge about $5 per trade. If you’re making 10 trades per day, that’s $50 in costs per day. That adds up to $1,000 per month just in commissions!

Don’t be blind to your commission costs! It will add up quickly if you’re not paying attention. Check about once per week to see the commissions that have gone to your broker.

Stock Portfolio Management Tools

Now that you have your portfolio set up, here are a few companies that can help you monitor, and keep it organized.

The first is Personal Capital. With this tool, you connect your external financial accounts to Personal Capital. Once everything is connected, Personal Capital will track all your investments and how they’re performing against some of the benchmarks. They also have mobile apps so you can track in on the go.

The second is Morningstar. Similar to Personal Capital, Morningstar allows you to track your fees and performance. The drawback is that you cannot link to your bank and other investment accounts. You’ll have to manually enter the information yourself. But hey, maybe it’s better not to have an outside company have access to your bank account.

Finally we have SigFig, which has a free portfolio tracker. Like Personal Capital, you’ll connect SigFig to your broker and get all your investment data imported. In addition to stocks, you’ll also be able to track your 401(k) and IRAs. You’ll get weekly email summaries of your portfolio performance and news on your investments. Sigfig also analyzes your stock portfolio for hidden fees and overexposure to certain stock and industries. That makes it a good fit if you’re having trouble maintaining a balanced portfolio.

Never Trade Too Big

When you first start trading, don’t risk too much of your account on one trade — keep it under 2% of your total account value. If you have $20,000 in your account, your first trade should be worth about $400 or less. When you start trading a lot, you can refine your strategies and potentially increase your odds of succeeding in each trade.

Once you start having a consistent win rate (at least 60%) on trades, if you’re ready, you can increase your position sizes. But keep them balanced with your other stocks.

You don’t want to have 85% of your total account value in one stock. That’s a recipe for disaster.

The key takeaway here: Maintain relatively equal position sizes in your stocks.

Keep Learning

Great traders never stop learning. They’re constantly looking to refine their strategies to gain their edge in the market.

The best traders are reading books, watching YouTube tutorials, and learning from other traders.

Every trader has a weakness … whether its holding onto losers too long, getting too emotional when trading, running an unbalanced portfolio, not timing entries or exits properly … the list goes on.

That’s why it’s so important to study and keep learning.

The Bottom Line

How should you maintain your portfolio? Keep it balanced.

Stocks, and the sectors that they are in, are volatile and can decline quickly. Like, a 10% drop in a few minutes, quick.

If you have too much money in one stock or a particular sector, you’ll tip the scales and could end up losing a significant amount of your investment — and believe me, it’s not fun.

A good way to help protect yourself against this is to have a balanced stock portfolio, with an equal amount of cash in stocks and sectors. That way you can take full advantage of seasonal stocks and the price movements in sectors.

Regards,

Tim Sykes
Editor, Penny Stock Millionaires

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Timothy Sykes

Tim Sykes is the editor of Tim Sykes’ Weekly Fortunes, a bi-weekly penny stock trader.

He also writes the free daily e-letter, Tim Sykes’ Penny Stock Millionaires

Tim’s most famous for turning the $12,415 dollars he received at his Bar Mitzvah into more than $1.65 million dollars in trading profits by college graduation.

In 2003,...

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