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Editors Picks Build a winning investment portfolio. 
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By Jonathan Kolber Almost every day there is a new technology that could change the world as we know it. But we all know that only one in a thousand actually do… Here we have that one. |
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| Build a winning investment portfolio. |
| Thursday, 17 May 2007 | ||||||||
How to build a winning investment portfolio?You need a streamlined approach to investing.I will try to explain by quoting an example when you come to a road crossing, how do you decide which way to go? Do you go by the road signs, or look at the map, or just go right ahead and take an unsystematic blast? If you follow the first option, then you do have a certain philosophy at work, yes that is true even if you are not aware of this you have subconsciously adopted a policy. If you don't know where you're going, it doesn't much matter how you go and what road you go by to get there. Apparently this means that you need to, first and foremost, develop clear road map of your investment destination of where you wish to take your portfolio, I want to make money type of attitude is simply not enough. What is an investment philosophy?An investment philosophy is a set of rules by which decisions occur. These guidelines help to achieve the defined goals of the investor, and these are usually clued-up by research findings, on an object of investment; the important thing here is that the investment philosophy represents a set of guidelines.Rule No. 1: Is diversification of risk.Have a diversified portfolio, and to achieve this portfolio can not consist of just 10 steel companies. The simple reason behind this is the steel business if goes out of favor with the Government policies will take its toll on all of the steel companies. Hence, this kind of portfolio is risky.Rule No. 2: Don't spread your investment portfolio too wide.By casting your net wide across many stocks, at least a few of them will turn out winners, yes it is a possibility, instead spread it to decrease risks. However, most of us forget that there is barter between risk and return, as the number of stocks keeps increasing the portfolio becomes unmanageable, this begins to reduce your total return.As a thumb rule, keep the number of stocks in your portfolio to the extent of 15 or 20 to the maximum this should be a manageable portfolio of sorts. Rule No. 3: Establish risk profile before creating your portfolio.You cannot afford to have low risk and high returns portfolio, yes this is next to impossible. Having a portfolio is all about balancing between the two opposite forces that is risk and return.Portfolio creation is all about optimizing returns, given a risk profile and an investment horizon. That’s about it for the rules, and philosophy of investment, but before we conclude, let us takes a round of all that we discussed above. Your risk profile is characteristically in close correlation to
Conclusion:An ideal diversified portfolio would be that gets twofold its value every three years. If your portfolio gets doubled every three years it is proof enough that you are a smart investor.There are going to be bear and bull cycles, volatile markets. You ought to live out these it’s always going to be difficult; the stock idea for you is to last longer and sustain the whirlpool; only a disciplined and philosophical approach to investment will take you there.
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