A key strategy to achieve financial independence is developing your portfolio for long-term sustainable growth. There is no single formula to achieve this. Many experts argue that you should spend time creating a portfolio of stocks that have intrinsic value and are undervalued and then let those stocks do the rest. That sounds like a formidable challenge, but it can be done if you are prepared to develop a unique portfolio management plan, one that takes into account the intrinsic and relative value of all the investments you own.
The first step in any portfolio development process is to create a document called a portfolio objective. This is a statement of purpose that outlines what your portfolio will do for you. You don’t need a lot of details, just a list of the types of investments you want to include in your portfolio. It might also be helpful to outline a description of how you envision your portfolio effecting your life in the next five or ten years. Think about things you might be looking forward to during that period, and research those areas in depth.
Next, you’ll need to identify opportunities in the markets for each of the stocks you selected for your portfolio. Do some research on the internet, looking for articles and websites that talk about the industries or niches your portfolio is designed to serve. Write down the top 10 industries or topics that pop up most times. Then, narrow it down to include only those industries or topics that are underpriced, but which also have the potential for growth. You can do an even more thorough portfolio analysis by looking for the top ten stock performances in each of these industries over a given five-year period.
When you have developed your initial portfolio, don’t be afraid to start putting money into it. Most investment products offer a free-trading trial – a limited time period during which you can trade using real money without buying a stake. Sign up for everything offered by the companies you are considering; if you have an account at a brokerage firm, check their investment options. If you want to build your portfolio faster, consider opening an account at a discount stock broker, so that you can start off with a small investment, allowing you to get more experience before investing more money. This is also a good way to reduce your risk level.
Another approach to portfolio development is to invest in options or futures. These products are less risky than stocks, since you are not actually buying and holding the underlying asset. Instead, you place a position on whether the price of the underlying asset goes up or down. Options can be traded online via platforms like the Nasdaq and the E-mini. Although they don’t offer the potential for spectacular gains, they are safe enough to allow you to develop a diverse portfolio. Option trading also allows you to create a diversified portfolio without having to worry about losing your money.
As you can see, there are many ways to make portfolio development work for you. Choose the strategies that work best for you and remember that you will need to be disciplined and responsible. Developing your investment skills can be rewarding and enjoyable.