Building a portfolio

I believe that some of the most efficient and effective portfolios can be constructed simply by using investment trusts and exchange-traded funds (ETFs). Used correctly, they provide a low-cost means to instant diversification even for the most modest starter portfolio.

The use of such pooled investments will often form the core holdings of investors’ portfolios.  However, as one’s experience, knowledge and confidence regarding the stock market grows, many investors will wish to trade other stocks such as those of individual (non-investment) companies.  Initially, examples of these might be those familiar to the investor such as BP, Vodafone or Tesco.

Investment in such companies is invariably higher risk, as you are no longer getting diversification through any single investment.  If you abandon the use of pooled investments altogether, you should invest in a minimum of 10 or 12 stocks, with perhaps between 15 and 20 being optimal.  Investing in many more than 20 stocks will mean it is harder to monitor your individual holdings.

Before starting your search for potential portfolio holdings it is probably useful to revisit your investment goals

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