Constructing a Portfolio
by, 11th-April-2015 at 11:09 PM (3842 Views)
I thought we may get a discussion going on the best way to construct a portfolio and which stocks are suitable for different styles of portfolios.
In my own experience in what I have learnt and read over the years I would start by saying that regardless of whether you are looking for growth or income, you will need to select good quality stocks for your portfolio.
Identify the Goal of your Portfolio:
The stocks we select for a SMSF portfolio will be different to the stocks we select for a growth portfolio.
This is an important point as I have seen portfolios constructed with the wrong type of stocks .....what I mean is they were not bad stocks just that they were not suited to the goal of the portfolio.
Develop a list of stocks to suit the Goal of your Portfolio:
Start with the ASX Top 150.
The goal of your portfolio will determine the amount of risk associated with it and therefore the amount of research you will need to undertake to select the most appropriate stocks.
Once you have a selection of stocks for your own portfolio goal we can begin to construct the portfolio.
Below is a general list of portfolio styles that I base my own portfolios on which may help those that may be new to portfolio construction.
Initially construct using the Top 20 ASX.
Once you develop more experience you can include stocks in the top 50 to 100 using a 60/40 split.
Blue Chip Portfolio:
A balanced approach between growth and income suited for people who have a low tolerance to risk.
Constructed from the Top 50 ASX.
Once you develop more experience you could include top 50 out to 150 even 200 using a 60/40 split.
This portfolio is suited for those who are more risk tolerant and willing to spend more time getting a better return on their investments.
Top 50 will make up 60% of the portfolio.
Top 51 - 100 will be 40% of the portfolio.
More aggressive portfolio
Top 50 will make up 20% of the portfolio
Top 51 - 100 will be 60% of the portfolio
Top 100 - 200 will be 20% of the portfolio.
This portfolio is more concerned with higher growth so many trades will be short to medium term over three to nine months.
This type of portfolio needs to be actively managed so you will need to spend a number of hours a week to manage this portfolio. With this type of portfolio trades can move fast but the returns can be greater than 30% in short periods but also a higher percentage of losses as well.
No more than 10% stocks outside the Top 150 ASX at any one time.
Top 51 - 100 will be 60% of your portfolio.
Top 100 - 150 will be 40% of your portfolio.
As a trader that has a good level of experience in trading outside the top150
you can set your weightings as below.
Top 50.................. will be 10% of your portfolio.
Top 51-100........... will be 60% of your portfolio.
Outside the top 100 will be 30% of your portfolio
These portfolios and their weighting are just a general idea and what helped me get started in portfolio construction with my own portfolios and depending on peoples experience will change the weightings to suit.
Hope this post helps someone.
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