The importance of a balanced portfolio
Your Personal Finance Magazine Finances ~ Banking ~ Investing ~ Financing ~ Credit Cards ~ Insurance
You are here: Home: Investing: The importance of a balanced portfolio Wednesday ~ November 22 ~ 2017 RSS-Feed Syndication
  Category: Investing

The importance of a balanced portfolio

Investing in the stock market can be a very rewarding and lucrative experience ...

 
The latest articles
 
Making money on the side with a model job
Working as a model is the perfect way to make some money on the side with a part-time job that does not require … more
Category: Finances
 
Incoming insurance for foreign guests and visitors to Germany
In the event that foreigners visiting Germany, Switzerland and other Schengen countries are taken ill, the medical costs can be covered by an … more
Category: Insurance
 
Saving money on your grocery bill
Many people pass over the coupon pages of the Sunday newspaper without even giving it a thought. If you found a dollar bill … more
Category: Finances
 
The Rent-to-Own Trap
You see a TV set at the rent-to-own center that you like. It's a big-screen version, complete with high-definition capabilities and a remote … more
Category: Finances
 
Everyone has heard the old advice to never put all your eggs in one basket, and that adage is certainly true when that basket is your investment portfolio. Investing in the stock market can be a very rewarding and lucrative experience, but it is important to spread the risk of that stock portfolio across a basket of different stocks, and across a variety of different industries.

The reason for this diversification is obvious. If one of the stocks in a diversified portfolio suffers a large loss, the loss to the overall portfolio is likely to be very small. If, however, that stock represents a significant percentage of the portfolio, the loss could be devastating.

Of course achieving the level of diversification recommended by financial experts can be difficult, especially for the small investor. Many financial advisors recommend that no one stock make up more than 4% of the overall stock market portfolio. That level of diversification, of course, means that the investor will need a basket of at least 25 stocks, and that can be prohibitively expensive for many individual investors.

One great way to keep costs down while achieving an excellent level of diversification is to invest instead in a quality index mutual fund. These mutual funds work by pooling the funds of many different investors, and using those funds to purchase all the stocks in a particular index, such as the Standard and Poors 500 or the Total Stock Market Index.

One of the best things about this diversified approach is that the investor will enjoy the return generated by the underlying stock index, without the broker fees associated with buying the stocks individually. This approach also helps to avoid the risk of underperformance, the risk that the stocks you pick will not do as well as the stock market as a whole.

Another important advantage of the diversified index fund is low cost. These index funds require no expensive money managers, so the fees they charge are generally much lower than for managed mutual funds. It is important of course to shop around at several different mutual fund companies, and to compare the return the fund has achieved to that of the relevant stock market index.

For those with the funds to build a diversified portfolio of their own stocks, it is a good idea to seek out a low cost broker, and there are certainly a great many low cost brokers to choose from. It is also important to be aware of any fees or charges that may apply to smaller accounts. Many brokerage firms waive many charges for their high dollar clients, but they may charge higher fees to those with lower balances.

Whether you purchase a high quality index mutual fund, buy individual stocks or take a mixed approach, however, it is important to carefully diversify your stock market holdings. Holding a diversified portfolio of stocks is one of the very best ways to mitigate the risk inherent in the stock market. (don)
 
 
Bookmark
Bookmark to Digg.com Bookmark to Del.icio.us Bookmark to Reddit.com Bookmark to Technorati.com Bookmark to StumbleUpon.com
 
 
Rate this Site:

Average rating: 6.7 of 3 votes.

 
 
Websearch with Google
Porias.com Web
 
------------------------------------------------------------------------------------------------------------------------------------
 
More articles in category Investing:
 
Tips for the smart investor
Investing is one of those things that often sounds quite a bit more difficult and mysterious than it actually is, and getting started with investing does not need to mean having tens of thousands of dollars to invest, or paying outrageous fees to stock brokers and financial advisors. With the … more
 
Choosing a foreign exchange broker
The Foreign Exchange is a very specialized form of day trading, and the largest in the world. Choosing a qualified broker who has been specifically trained in FOREX is essential to success. Even so, always check with other traders and trading forums to see if a broker you are interested … more
 
Texas real estate laws overview
The home mortgage business sauntered into Texas in 1997 when state laws were amended to allow home equity loans. Texans, being who they are, are proud of their homesteads and had a strong desire to protect homeowners from the possibility of losing their homes through financial fiascos. The real estate … more
 
 
 
 
 
Your personal finance magazine at Porias.com  
Finances ~ Banking ~ Investing ~ Financing ~ Credit Cards ~ Insurance Copyright © 2005- Porias.com ~ All rights reserved
Schließen