If done well, managing your own stock portfolio will easily be more rewarding than investing in unit trusts or ETFs. This is because of the much lower expenses involved, and the ability to choose stocks that can outperform the market.
However, managing your own stock portfolio also requires discipline, a long-term approach, and an eye for good investments. In this article, I want to describe three essential steps to be your own portfolio’s manager.
Find the cheapest broker
With the proliferation of discount online brokerages, the cost of investing in stocks has declined over time. Investors can now purchase stocks for commission fees that reach as low as $1 per transaction. This means we do not need large amounts of money to start investing, and it gives young investors the opportunity to start investing very early.
However, not all brokers charge such low fees. It is therefore important to shop around for the broker that provides low fees but, also has a stable and reliable platform for you to make your purchases.
This is perhaps the first advise that any seasoned investor will give. When managing your own portfolio, it is vital that we do not put too many of our eggs in a single basket, no matter how confident we are.
A company’s fortune may change over time, sometimes because of factors outside the control of the management team. Therefore, even if we have faith in the management team and business of a stock, we should always consider the chance that things may go sour and ensure that we do not put too much of our investment portfolio in any single stock.
Track your returns
Finally, investors should diligently track their returns. Unfortunately, I realise that many investors I talk to do not track their returns. This is because the tracking process can be tedious. Investors need to keep track of the price at which they have bought their stocks for, how long they have held each investment, and then compare their compound return against the market.
Despite how tedious portfolio-tracking may sound, finding out whether you are actually outperforming the market is essential in your future investment strategies. If you realise that you are not beating the market, then choosing to invest in an index-tracking fund might be the better option.
The Foolish bottom line
If you have decided to manage your own stock portfolio, the three steps above are essential in providing you with a platform to achieve the best returns you possibly could over the long term, and to mitigate the risks.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.