Disclaimer: Not financial advice. Only for educational purposes.
In this blog, I will share the experience I have gained through practical engagement in the stock market.
Let’s dive in…
- Educate: Before doing anything in the market, educate yourself or take the appropriate guidance.
- Clarity: As someone planning to create a portfolio, you must have clarity of your risk appetite & goals i.e. what is your investment duration(roughly)? What is your expected return? These points will play a role in the selection of your stocks .
Note: The amount invested should not affect your liquidity i.e. in case of an emergency, you should not be forced to sell your stocks.
- Diversify: Diversify your investment into multiple sectors. Why? Eg. Scenario: You have invested the entire sum in the IT sector & due to an unforeseen event, the IT sector is adversely affected. In this case, your portfolio will collapse. Therefore to insulate your investment, diversify.
- Access & Revise: Access your portfolio from time to time. No portfolio is evergreen.
Note: There is a lot more you need to learn before creating an effective portfolio (Fundamental analysis, reading news related to the company/sector in question, implication of that news, etc.), but the basics are of utmost importance.
Asset allocation & rebalance
(This needs knowledge & time)
Below is an example I have prepared with all the basics in mind.
Eg. Investment capital: Rs10,00,000/-
Please relate the upcoming points to the basics we discussed above.
- Goal of 13% – 20% annual return(excluding Mutual Funds). Medium risk appetite. The expected period of investment is 10yrs.
- You can see that my investments are not sector centric.
- All the companies in the portfolio will need supervision & revision. Especially the 40% allocation (Trending segment).
Note: This is a random allocation from the top of my mind & not advice.
50% – HDFC bank (15%), HUL (15%), HCL tech (20%) [STABLE Base]
40% – Tata Motors (10%), Tata Power (10%), Solar components manufacturer(10%) [Trending sectors (EV, manufacturing, green energy etc.)]
7% – Mutual Funds, 3% – SIP (to be invested over a period)
The portfolio must be periodically reviewed & rebalanced if necessary. Why?
The market situation is never constant. The situation today might be feasible for the X sector, but it will not be the same 3 months from now. Therefore, for effective performance, rebalancing is necessary.
Eg. The EV sector will not be trending forever. Soon, I will have to monitor market developments & make the appropriate adjustments.
One last Basic:
The majority fail in the stock market because of overconfidence & negligence. It is not something you can do only based on calls/tips or half-education. Approach investing professionally & you will be alright.
Two ways to approach the market:
- Study about it yourself, in-depth. Be involved in it yourself no halfsies. Still not getting an effective result? Combine point 2.
- Contact an advisor who can guide you through your investments.
Stay aware, Stay safe.