When it comes to stock investing, knowing your investment goal is crucial. That, along with your investing time frame and how much risk you’re willing to take when investing in stocks, will help you determine how your stock investments should work with the rest of your investment portfolio. Stock investing can help your investment portfolio by providing potential growth, income from dividends or a combination of the two. However, the value of any stock can fluctuate, it may be worth more or less than you originally paid.
Develop a Diversified Asset Allocation Strategy
When selecting stocks to invest in, you should carefully consider the risks of stock investing and develop a diversified asset allocation strategy that fits with your goals, investing time frame, and risk tolerance.
Invest in approximately 20 to 30 stocks in at least six to eight sectors with different investment characteristics. No more than 20% of the total value of your stock portfolio should be in any one sector. No more than 10% of the total value of your stock portfolio should be in any one stock. You should invest a minimum of approximately 3% to 4% of the total value of your stock portfolio in each stock.
Deciding which stocks to invest in can be difficult, especially if you have a low tolerance for risk. That’s why it’s important to define one’s financial goals and how much risk can be tolerated. Research stocks that fit within your strategy and invest in stocks that have the potential to help you meet your specific goals, whether you want investment growth, income, or a combination of the two.