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Secrets to setting up your own successful investment portfolio

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According to the editor of The Daily Reckoning Australia, Shae Russell, the most common question in the world of investing is how to properly get started. While there is a lot of free information available online for people who want to start building their portfolio, it can get very confusing.

So here are some great tips to consider from Ms Russell on how to properly start building your portfolio on your own.

A lot of nonsense and jargon online

Having worked for more than a decade in the financial industry, Shae knows that there’s a lot of nonsense and lingo from online sites that provide investment advice.

While some are good advice, they are really all about drawing you in, then persuading you that you can’t handle your investments alone.

Should you decide to consult with the website’s advertised financial adviser, some may hand you a modified version of the same stock allocation that they provide to everyone else.

Their idea of a balanced portfolio might be a selection of stocks that are primarily focused on the big banks, a telco perhaps, a few mining giants and then maybe Australia’s second-biggest technology stock.

However, Shae has a different and interesting strategy on how to start your own investment portfolio.

Shae’s portfolio

Ms Russell believes that a stock-heavy portfolio isn’t a balanced one, no matter how well spread out the stock investments are. This is her strategy.

  • 50% of your cash into stocks
  • 10-20% into gold and silver bullion
  • 10-20% into cash
  • 10% in bonds
  • 10% ‘fun money’

In most cases, choosing the right stocks is the most intimidating part for investors, and buying cash and gold look like the easier option. However, she states that you just really need to do your due diligence to understand the financial lingo.

Nonetheless, you don’t really need to get too entangled with the financial details of the companies that you’re interested in. Simply find out if the company is profitable against how much debt it has.

Also, she suggests checking if the company’s net income is gradually increasing. This would generally suggest that the company is still growing which means the share price should go higher as their earnings grow.

Both Google Finance and Yahoo! Finance provide free basic monetary information. Your stockbroking platform may have these details too.

As soon as you develop this habit, the less intimating the financial jargon will be.

Steer clear from complicated businesses

The first step to building your stock portfolio is to steer clear from any complicated businesses.

Her rule in investing is, “If the company can’t explain what it does in 10 words or less, ditch it.

“Complicated businesses spend more time talking to the market than doing the things they claim to do.”

In addition, complicated businesses that have their interests scattered in numerous directions can’t concentrate on what the core of their business is.

Pick an industry you’re already familiar with

The next step is to pick stocks that you’re familiar with. Take advantage of your knowledge.

While you might not feel like you have a good grasp on the world of stock markets, chances are you understand your industry. So take that understanding then apply it to stocks listed on the ASX.

Blue chips aren’t always the answer

Once you have a few stocks in your portfolio, you can start to broaden your investments. The ASX has more than 2,000 listed stocks.

The common financial planner may likely put your money into the top 20 blue-chip companies in Australia, but Shae doesn’t stick to this strategy.

Her advice is to spread your money out against the marketplace. Pick a number of blue-chip stocks from that top 20 list that pays a high dividend. Instead of concentrating on shares increasing in value (capital growth), try to find companies that will provide you with some sort of income. Then, spread the rest among midsize to smaller sized businesses.

Outside the list of the top 50 companies in Australia is where your industry knowledge could be beneficial. For instance, if you’re a mechanic, you may want to invest in the car parts business. Take advantage of your own inherent understanding of your industry and use that when choosing the rest of your investment stocks.

Shae’s last advice is to always keep in mind that there is no such thing as a “set and forget” investment portfolio.

If you do not regularly review your portfolio, you could end up exactly where you began, or worse, broke.

Nonetheless, it doesn’t mean that you need to watch the market every day. You should instead examine your portfolio regularly to make sure you’re on track with your financial goals. Consider checking in on the companies that you’ve invested in once a month.

The more frequently you evaluate things, the more comfortable you’ll become with market movements and managing your investments.


Source: Shae Russell, Editor, The Daily Reckoning Australia

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The material on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs. Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this website are provided for illustrative purposes only.

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