These are some of the significant aspects of building and managing an equity portfolio:
Planning
Realistic expectations: First of all, it is very important to have realistic expectations when you are investing in equity-based instruments. There is no doubt equity-based investments have yielded extraordinary returns during certain phases in the past, but it is important to keep in mind that past performances may not be repeatable in the stock markets.
Time management: Investments in equity and equity-based instruments are not completely passive in nature. They require some active tracking and involvement from the investors, to identify the right opportunities to enter and exit.
Risk appetite: It is important to understand that investments in equity-based instruments are risky and in adverse conditions investors may face a loss. That is why it is advisable for you to invest only your risk capital in equity-based instruments. You should also understand your risk profile to identify appropriate instruments. The risk profile of an investor depends on many individual factors such as age, financial background, earning visibility and stability, and family background.
Diversification: You should allocate a percentage of your total investment portfolio to equity-based instruments. You should diversify and balance your total investment kitty among various instruments such as life insurance, medical insurance, tax-saving instruments, commodities, property, and other safer instruments such as bank fixed deposits etc.
Timing: It is not possible to predict and buy only at the lowest level of the markets. Therefore, investors should buy in smaller quantities at regular intervals in order to ensure a good average entry price on investments.
Picking stocks
Identifying sectors and stocks for a portfolio is not a difficult task. However, it requires some patience and tracking.
These are some steps you can take to choose stocks for your portfolio.
Prepare tracking list: The first step is to prepare a tracking list of stocks from various sectors. You can pick the stocks for your tracking list considering the tips offered by market analysts, stock brokers etc. Investors should analyse the basis of the recommendations rather than follow the advice implicitly.
Track stocks: Once the tracking list is formed, investors should keep tracking the news and developments around these stocks including quarterly results, management interviews, analysts' columns etc. This information is easily available. Once you feel comfortable with the stocks and they appear to be good buys, you can start investing with a long-term perspective.
Discussion group: This is a good way to analyse and identify stocks to invest in. Due to the dynamic nature of stock markets, it is very difficult for an individual to track all the significant market events.
Investors can form a small group or participate in discussion forums to analyse equity investments. This gives a good platform to learn through mutual interaction and be attentive to many market developments.
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