How to Build a Diversified Stock Portfolio

In recent years since the 2007 bank crisis, the stock market has been an uncertain place. It is true to say investing in the stock market has always had considerable risks, and isn’t for the faint hearted. This could not be more true than today. However, for some fortunes are still made every day.

For the brave, there is money to be made on the stock exchange. The best strategy today unless you’re very rich is to look for long term investment.

The best long-term investment is to buy a range of shares in diverse businesses over a broad range of industries. For long-term investments it is best to choose stocks that pay bi-annual dividends.

Dividends will ease the pain if one or more of your chosen companies should eventually fall into liquidation. Paid dividends will at least recoup some of your losses.

Buying shares in diverse businesses and industries will also hedge against losses in your portfolio’s under-performing stock; keep your stock wide and varied. During lean times it might be best to avoid construction and property stocks. In very bad times metals always do well and gold has risen in value consistently for a few years now.

All stocks have a peak, and it is vital to know when a particular business or commodity is like to fare badly. By keeping your finger on the pause, you can pick and mix your portfolio selling badly performing shares when need be.

However, if you are building a portfolio for the long term, do not be too tempted to sell shares when there is a fluctuation in the share value. It is important to understand what has caused the drop in share price before selling. Often drops in share prices are only temporary and not an indicator that the company is doing badly in the long term.

A long-term portfolio looks to maximise on dividends and see a gradual and sustained rise in the share price. An occasional blip in the share price shouldn’t cause too much alarm, and the stockholder shouldn’t be panicked into selling too soon.

There are no safe bets in stocks and shares, but for the wary it may be best to stick to filling your portfolio with blue-chip shares. Blue chip shares are the best performing shares. The term blue chip is taken from casinos.

A good portfolio should include savings that are safe from risk. Only money that you can afford to lose comfortably in a worst case scenario should be invested in stocks and shares.