How to Build a Million Dollar Investment Portfolio
How to build a million dollar investment portfolio is all about the successful strategies investors to use to build wealth slowly but steadily. This article discusses creation of an extraordinary investment portfolio and the selection criteria of stocks to that portfolio based on the strategies of greatest investors! Here you go.
Nature of a million dollar investment portfolio
At the very first, it should be a foolproof portfolio with right stocks and right mix. We focus on the portfolio here which must be created with handful best stocks, say about 10 to 15 best stocks. This would not only help to monitor and balance the portfolio time to time as well as avoid the mistake of having lots of stocks that later come as a monitoring pain.
Strategies to select stocks to an investment portfolio
A wonderful portfolio should have the best performing stocks from large cap, mid cap and small cap spaces and in a right proportion. Say a 30% from the large cap space, 60% from the midcap space and 10% from the small cap space.
Role of large cap stocks in the portfolio
Large cap stocks are blue chips with fantastic business with popular products and services and across the country. The major reason to add best known large caps is not only to build wealth but also as a hedge against the portfolio volatility! Yes, large cap stocks would perform as a medium to adjust momentum as well as long term loss by a or two stocks in the portfolio. Bluechip stocks will work as an arbitrage in the portfolio. At least 4 best largecap bluechip stocks must be there in the portfolio.
Why should one add midcap stocks to the portfolio?
No doubt, purely leveraging growth and build wealth. Best midcap stocks are the best option and must have enough weightage in the portfolio to take advantage from business as well as economy growth. Midcap stock volatile to a certain extend. 6 to 8 midcap stocks must be present in the portfolio.
Why should I add smallcap stocks?
Smallcap stocks are risky but the return will be high. Should take enough care when selecting the small cap to invest. Best smallcap stocks have enough room to grow as midcap and this add huge wealth to the investors. However, a 10% in the stock portfolio is sufficient for small cap stock by considering high risk. 3 stocks from the small cap space will spice up a portfolio.
How to select the stocks?
Based on the business and competitive advantage of the products and services, stocks must be shortlisted. Stocks must be from different sectors that are performing well by the past and present.
I personally prefer consumer, utility, pharma and banking sectors can have bit more weightage in the portfolio as these businesses are always there and using by the public irrespective of economic slowdown or recession etc. Pharma stocks also a good addition. However, number of stocks must be limited and should have well diversified portfolio.
How to evaluate a stock
Stock evaluation must be done based on business, management, financial performance. Is the business having durability and competitive advantage? Is the products are famous and continuously using by public? Have a business network across the country? all these needs to be evaluated. Monopolistic position of the product or service is excellent!
Should check the management to understand their view to the shareholders especially, bottom level shareholders. Management should be highly rational and work for the shareholders. They should not have any corruption or fraud history. Red the excellent guide to find and invest on best stocks in this blog to know more about how to select a company based on these three factors.
Portfolio balancing
A perfect portfolio should have best performing assets and should have diversified well between assets. It should have right proportion of stocks, mutual funds, gold, real estate and other investment instruments to leverage growth to the maximum.
Learn the strategies of great investors. This will help you to understand better on how to create foolproof portfolio by adding right assets. Asset selection and proportion in a portfolio should be based on the goals, duration and risk tolerance of the investor.
Secret behind successful wealth creation
Wealth creation secrets are well know to all. Learn about investing, start investing early, avoid common investment mistakes, monitor the portfolio, focus on diversification are the major branches in it. Learning is mandatory to know more about how to invest successfully. Early, disciplined investment would help to create wealth steadily. Failure of investment happening by committing mistakes. This to be identified and avoided. Monitoring portfolio help to avoid bad performers and add new. Finally, diversification help to secure the portfolio to a great extend.