MENU

Is Your Portfolio Scalable?

Most of us started investing because we wanted to reach our financial goals earlier. However, we rarely think about how to build our portfolio in such a way that it is scalable as our capital increases. Here are some challenges that we might face as the size of our portfolio increases.

Buying Small Caps

Some investors might prefer to invest in small cap companies instead of the blue-chip companies. The typical assumptions are that since the small caps companies are smaller in size, they have a higher potential for growth in the future.

However, small cap companies tend to be thinly traded generally. This means as your portfolio size grows, you might have trouble buying a large position to make that investment meaningful to your portfolio. And if small caps companies are the only type of investments that you are focused on, you might not be able to scale up your portfolio as effectively as you would like in the future.

Buying Turnaround Situation

Buying unloved companies that have fallen on hard times can be exciting. When we see a company’s share price plunge, we might be eager to invest in them, hoping that the company would be able to turn its fortune around.

However, such investments might be hard to come by. This means as the size of your portfolio increases, there might not be sufficient turnaround opportunities in the market for you to invest in.

Diversification

Lastly, some investors might like to set a fixed amount to invest in a company. An investor might have S$100,000 in his portfolio and might want to invest only S$10,000 per company. This means that he or she would have about ten companies in the portfolio.

However, if the portfolio was to grow to a million dollars, the investor might need to find many more companies to invest if he or she does not change his investment approach. And it might reach a point where there are too many companies in the portfolio for the investor to monitor effectively.

Foolish Summary

You might have a certain style or strategy for your investment. However, it is worthwhile to take some time to think about whether the current strategy that you are employing is still useful as your portfolio grows.

If your strategy might face some challenges similar to the examples above, you might want to think about how to change your style to better suit your portfolio as it grows.

If you want to learn more about investing and to keep up to date on the latest financial and stock market news, you can sign up for a FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.