How to Create a Portfolio from Scratch
Here is a throwback to the start of GradMoney - an article that is extremely relevant today. Taking the plunge into cutting ties with a broker and investing on your own, like any risky endeavor, can be scary. After all, these bankers have all kinds of fancy degrees and certificates that must give them some kind of magic power to buy and sell the best stocks for virtually no risk. Guess what? That is not the case.
In fact, in many cases the general public has proven to be better at picking stocks than the pros. There are tons of complicated investing instruments out there, and there are more being created every day – that’s what the pros are for, but you don’t need any crazy investing instruments to make money in the stock market. All you need is a little money to start, and your brain.
Before you make the plunge into investing, you first need to open a brokerage account. Here are some tips to help make that process quick and painless:
1. How to Choose a Brokerage Account
see commercials for them all the time, but what makes one investment service better than another? The simple answer is that it all depends on you. Only you know how much of your savings you’re willing to trade, but also keep in mind that your age and risk temperament are important to consider as well.
Depending on the situation, you should keep a range of 15%-30% of your total brokerage account in cash. This way you have enough money on the side to make trades for whenever you want. With this in mind, the following is a rough estimate of how much money is required to open a brokerage account with the following trading platforms:
What makes one better than the other? Again it depends on how much and how often you plan to trade. The higher account minimums usually offer the first x-number of trades for free because they assume you will be doing a lot of trading. Make sure to determine what you can afford and how often you think you will be making trades.
2. Important Features Needed in a Brokerage Account
I do not advise one account over another, but I think it is important that any account you chose provides three things.
Firstly, that they have a proven ability to execute trades – buys and sells – both quickly and at a decent price. Most of the well-known brokerage firms are good about trading stocks at the price you want, and most trades settle within 72 hours, but it is always good to check.
Secondly, see that the brokerage firm provides users with access to tools and educational information to help you make investment decisions.
Lastly, you want to be able to check your account on the go, so having a great app for your smart phone or tablet is vital.
3. Look to Buy Stocks Where You Already Spend Money
So you have a brokerage account all set up and you’re ready to make your first trade – awesome!
Before you go reading all kinds of big complicated reports and expert advice, ask yourself this question: where do I already spend my money? Everyone knows what brands they are drawn to because of product and service quality – if you already do business with them, and like them, you should own their stock.
Do you buy Nike shoes for your spouse, your kids, or yourself? Consider adding Nike (NKE) to your portfolio.
If every car your family has ever owned was a Ford, you should be buying shares of Ford Motor Co. (F).
Are you a bigger user of Macs than PCs or visa versa? Make sure you look to add Apple (AAPL) or Microsoft (MSFT).
Obviously, these are not personal recommendations but these are the kinds of questions you should constantly be asking. Look around your home and office to see where your money is already going. From now on when these companies report successful earnings, you can too!