Balancing A Stock Portfolio
Balancing a stock portfolio is done to increase profits and reduce risk in stock investment. A stock portfolio is the collection of stocks that a person owns. In picking stocks for a portfolio an investors seeks diversification of his investments. Diversifying a stock portfolio helps reduce investment risk and increases opportunity to hit an investment home run. Balancing a stock portfolio typically requires that investors purchase stock in several different market sectors. Buying large cap stocks, mid cap stocks, and small cap stocks is also an investment strategy used in balancing a stock portfolio. The investor goes about picking stocks as always but he purposely does not buy stocks in the same industry. It is possible to use a portfolio management service but investors or traders balancing a stock portfolio should know how to do their own fundamental and technical analysis. Scouting out stocks in crisis and buying at the bottom of the price curve is a viable strategy. Using Candlestick analysis to anticipate market trends and market reversal is integral to managing and balancing a stock portfolio.
In balancing a stock portfolio the investor will decide first upon his investment goals. Long term investing will require a different approach from short term investing. Older investors typically pick stocks with less risk but also lower reward potential. Younger investors commonly invest in stocks with more growth potential but which often are more risky. One approach to diversifying a stock portfolio is to balance risk. One or two stocks in a portfolio may be risky growth stocks while others will be dividend stocks which offer low growth potential but long term security. Microsoft in its younger years was a growth stock. Today it offers security and a dividend but little opportunity for the exponential growth of two decades past.
Investing in stocks in several market sectors is a common approach to balancing a stock portfolio. By not putting all eggs in one basket, or market sector in this case, the investor will not be hurt by economic events the affect the whole sector. By purchasing stocks in more than one sector the investor increases his chances for picking a big winner. However, it is not the mere act of picking more than one stock that makes balancing a stock portfolio successful. Use of both fundamental analysis and technical analysis with Candlestick pattern formations allows the investor to search for stocks that have the potential for near term rapid growth as well as long term stability. In balancing a stock portfolio the investor can choose different strategies for each of his stock picks. He can invest in high tech in bio technology, banking to take advantage of a growing economy, or big oil companies if he believes that prices will rise.