Updated: Feb 27
Building a solid investment portfolio takes a great deal of work and discipline, however the benefits are numerous and quite rewarding. Once you make the decision to grow your net worth, that creates financial empowerment all by itself. Here are a few ideas to help you on your journey.
Follow Your Dollars
I get many questions about what one should invest in and what stocks a person should put their money into. One of the most important things we can do is follow our dollars. Where do you spend your money and what companies do you love the most? If you have children and spend tons of money with Disney, it may be a good idea to have ownership in the company so you are seeing a return on your dollars instead of just throwing money away. Do you go to McDonald’s, or Starbucks every day? Do you shop at Costco, Walmart, or Dollar General?
Many of the companies you spend your money with pay dividends on the stock and often even raise the dividends. This will allow you to see returns on your money and you can benefit from getting paid cash by these companies, as well as, growing your portfolio as the stock rises over time.
With today’s trading frenzies rampant in the markets everyone is trying to be an amateur trader, right now. This is fine if you are allocating 10% of your investable assets, or less, but not a good idea if you are looking to build serious wealth over time.
A systematic investment plan allows you to guarantee the growth of your net worth because you are consistently sitting aside a sum of money every week, two weeks, month, or quarterly, to grow your investments.
A huge benefit to this strategy is that a concept called dollar cost averaging is working in your favor and you are purchasing your favorite investments at different prices over time. When prices are up, you’ll buy less, but when prices are down, you’ll buy more. This method is proven and very effective in smoothing out your portfolio performance. All that’s necessary to benefit over the long term from a strategy such as this is to invest in the entire market such as buying a low cost ETF that mirrors the S&P, such as SPY.
It sounds cliche when you hear this term, but it couldn’t be more vital to the success of building your portfolio. A big mistake beginner investors make is having too many eggs in the same basket. You could be overweight in individual stocks in your portfolio in tech, or in real estate and when that sector is hit hard because some sectors can be cyclical, your portfolio will seriously suffer.
Individual stocks are good, however you may benefit from exposure to a large number of companies through a low-cost ETF or a low-fee mutual fund. These type of investments can create diversification because you have a number of companies in that specific holding instead of just one. These investments often highlight a specific sector or theme and you benefit greatly by owning a slice of all your favorite companies, whereas it would be extremely costly to purchase all of those individual stocks on your own. Do your research on the funds you are investing in so you know all the implications involved with owning each specific investment.
Invest In Yourself
Anytime you get a raise, win some money, get a rebate check, income tax refund, sell an item on eBay or OfferUp, you have the opportunity to invest in yourself. For every dollar you put in your investment account today, that’s worth $5 of future value in terms of your money. It is just a good idea to take any amount you have that you don’t need today and put it into an asset that is going to pay you for many years to come.
Your probably work 40 hours a week and have bills. It is very important that we switch our mindset to pay ourselves first and our future is included in the things we feel obligated to pay for. If we don't pay now, we will pay later. Consistently adding $25, $50, $100, $500 whenever you can will ensure growth of your assets and will get you one step closer to financial independence. Pick a plan that you are comfortable with that works and stick with the plan.
Partner With A Professional
Often people want to try to do everything on their own, but navigating the stock market can be extremely perilous. The tuition of learning the stock market can be very costly when you’re playing with your own money and you’re following a stock tip from an article, friend, or colleague.
There are many ways to partner with an investment professional even if you have been self-directed all your life. Key benefits will be in receiving a current portfolio analysis so you can gain insights that will help you achieve your specific goals. An extra set of eyes into your situation can help you see your blind spots and opportunities.
Having a professional manage all or a portion of your investable assets can also be a liberating experience because you no longer have the pressure of having to try to manage it all on your own. If you want to trade and invest by yourself, keep 20%-25% of your assets and allow a professional to look after the rest for you. The livelihoods of professional fund managers rely on consistently bringing in returns and protecting the money of their clients. If they do not perform to meet the fund objective, they are out of a job.
Unless you have a large amount of assets, or have ever worked with someone in a financial planning capacity, you are unaware of the huge impact this decision can make on your portfolio and growing your money over time. If you find the right person that has access to the right platforms, you can do this in a very low-cost way and have the peace of mind, knowing that you no longer have to do all the work to mange your investments.
*Contact John Hall, a Registered Investment Advisor with the O.N Equity Sales Company, for a complimentary session to discuss your financial goals, learn if you're on the right track, and to determine what strategies are most suitable for you.