How to make and diversify a stock market portfolio?

At a time when savings no longer yield what they used to, many individuals are turning to the stock markets and deciding to build up a portfolio with a securities account. But it is still necessary to know which shares to buy and at what time. This article does not have of course a miracle solution to bring to you but has for vocation to avoid you certain errors and to help you to ask you the good questions in order to constitute your stock exchange portfolio under the best conditions.  

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How to make and diversify a stock market portfolio?

What are the current ways to build a stock portfolio?

First of all, let's take a closer look at the means at your disposal to build up your stock market portfolio. There are several ways to invest part of your savings in the financial markets.

The most traditional way is to build up your own portfolio by buying shares in listed companies. But it is also possible to buy indices through specific products such as trackers or ETFs.

Finally, another way to build a stock portfolio is to choose UCITS or Undertakings for Collective Investment in Transferable Securities, which are managed by investment professionals.

Of course, if you opt for the first solution, that is to say to constitute yourself your stock exchange portfolio, you must keep in mind that you will need a stable and durable framework allowing you to detect investment opportunities which will correspond to the objectives that you fixed, but also to your profile and your aversion to the risk.

On the other hand, products such as mutual funds, which are managed by third parties, do not guarantee your success in the stock market because speculation in the financial markets remains a risky business.

Let us also note here that the products of investment in stock exchange most often allow you to buy securities quoted on the French or European stock exchanges but that some funds also give you the possibility of speculating on other international markets such as the American markets or the Asian markets. However, you should be familiar with these markets before choosing this type of asset.

 

Know your investor profile before building a stock portfolio:

The first thing to do before constituting your stock exchange portfolio is to know your investor profile. For that, you will have to know at the same time your horizon of investment envisaged, the time that you can devote to this activity of speculation, the risks that you are ready to take as well as the budget that you can allocate to this portfolio.

The investment horizon here is the average time you plan to invest. It is indeed possible, through strategies such as day trading, to simply go back and forth on the markets in a few hours or days, but it is also possible to adopt an investment strategy over a period of 10 or even 15 years or more. However, the choice of this investment horizon will also depend on your aversion to risk and the time you can devote to this activity. Indeed, a short-term investment will require more time than a long-term investment and will present a much higher risk.

This is why many investors prefer not to venture into very short-term strategies and prefer medium-term horizons of 2 to 5 years or long-term horizons of more than 5 years.

It's also worth noting that owning stocks can, in most cases, pay dividends. The strategy of investing in stocks in the hope of increasing their value on the stock market in order to make a capital gain when you sell them is not the only one you can consider.

 

Managing the risks of a stock market portfolio :

As we mentioned above, before speculating in the stock market, whether it is through the constitution of a stock market portfolio or by any other means, it is essential to take into account the risks that this represents. Indeed, all the financial investments whatever they are involve risks for your capital. Indeed and if the price of a share cannot be zero, it happens that the volatility of certain securities during specific periods entail the loss of a great part of the invested capital for certain traders.

That's why it's important to never invest money in a stock portfolio that you might need later. You have to be prepared for losses in case of a crash or simply if you bet on the wrong company. It is not wise to invest in only one company or industry and many investors prefer to limit the risk of impacting their entire portfolio by diversifying the stocks in their portfolio.

On the other hand, investing in the stock market requires a certain knowledge of the stock market. Before building up your portfolio, you must therefore make sure you know how the market behaves, what elements can make a share price rise or fall and what are the financial and economic data of the company in which you will choose to invest.

More generally, it is always important, when building a stock market portfolio, to check that the product used corresponds to your personal risk profile. Ask yourself systematically if you are ready to accept the level of risk of an asset, a fund or a SICAV in order to reach the objective you have set yourself in terms of performance. Indeed, each stock market investment product has its own specific risks which are indicated to potential investors in the SIFDs, such as currency risks, interest rate risks and market risks. In the case of UCITS, these risks may reduce the portfolio diversification achieved by the fund manager.

Frequently Asked Questions

How to build a stock portfolio?

In order to build up your stock market portfolio in the best possible way, you need to follow a few simple rules: only invest money you don't need, set yourself a precise investment horizon, define your investor profile and strategy and diversify your assets as much as possible. By following these simple rules, you can start to invest intelligently in the stock market and begin to trade according to your results.

How to diversify your stock portfolio?

A good stock market portfolio diversification is essential to maximise your strategies and limit the risks. Thus, diversification of a stock market portfolio is an activity that consists in spreading your investments over various assets with several securities or lines within your securities account. This distribution will of course allow you to dilute the risk linked to each asset and to position yourself on various opportunities at the same time.

How do you add stocks or bonds to your portfolio?

It is possible to buy shares or bonds when they are issued by the borrowers in the primary market. But you can also buy them directly on the stock market or secondary market. In both cases and to acquire these securities, you must place a stock market order through an approved intermediary who will then enter these securities in your portfolio. This intermediary can be an online broker.

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