Building a portfolio isn’t something that should happen overnight. The day you buy your first stock is the day you become an investor – you have the rest of your life to build a solid portfolio.
A good long-term investor should think in terms of planting trees, not throwing darts. Over time, that first stock should grow into a basket of great companies that represent what you believe and where you think the world is headed.
In order for that to happen, you have to keep saving and keep investing.
Every investor has their own way of building up a portfolio, but to get you started, here are two popular methods.
Decide based on your personal finances what is the most you are willing to put into a single company. This could be anything from a few hundred dollars to a few hundred thousand.
Call this a full position and save with the goal of adding several full positions to your portfolio over time.
If you want to buy more companies in a shorter amount of time, buy twice as many half positions and turn them into full positions when you’re able.
For example, you like the look of Facebook and decide a full position is $500. Once you have that saved, you open up a full position by purchasing $500 worth of Facebook. In two months, you have another $500 saved. You could start another full position in Mastercard. Alternatively, you could split the $500 and buy two half positions in Mastercard and Zillow. The next time you save up $500, you can turn these into full positions rather than opening up another position.
As you grow as an investor, you’ll realize there are some companies you want to open full positions in right away and others you will want to be more cautious with.
Dollar Cost Averaging
In dollar cost averaging, you choose a few stocks and buy a set amount every month or every quarter.
The beauty of dollar cost averaging is that you can build up a large diversified portfolio in a short amount of time.
It also removes emotion from the process, as you purchase the same dollar amount every month regardless of price. If the stock has gone down, you get more shares for the same amount of money.