Introduction

The stock market is one economic avenue that, while being influenced by market forces such as demand, supply and public perception, is not limited by it. Meaning, while other business endeavours have relative caps on how much money you can generate through them (a salaried job is limited by your wages, in the stock market however, the opportunities are theoretically endless. The only real limit to how much money you can earn in the stock market, is your knowledge, your experience and your ability to efficiently trade in the market. However, you must always maintain caution, due to the fact that as with most things, the downs are as low as the ups are high. While you could make infinite returns, you could also lose virtually all your funds. The trick, therefore, is balance.

Now, assuming that you have done your preliminary research and have gotten yourself a Demat account and trading account, your next question is going to be ‘how to create a portfolio in the share market’. One key point to note is the difference between creating a portfolio and curating a portfolio. While understanding how to make a portfolio for the share market, merely creating a portfolio would mean you purchase a number of stocks and voila, you have successfully figured out how to create a portfolio in the share market. Curing a portfolio, on the other hand, is a more intricate task. A curated portfolio will have shares from companies you have studied, understood, and that can be hedged against each other, providing support to your portfolio in various economic climates, effectively minimizing your risk as far as possible. In this article, let’s take a look at how you begin your journey of understanding how to make a portfolio for the share market.

The basics

While there is an endless list of trading strategies and analysis points that go into creating the portfolio of well-seasoned investors, if you are a novice investor who is looking to understand how to make portfolio for share market, there are some basic do’s and don’ts which you can follow in order to vitally avoid making some key mistakes. With a little more discipline and a patient approach to learning how to create a portfolio in the share market, you could set your investing journey off to a good start. Let’s take a look at some of these points, and try to understand what they are.

1. Identify your goals.

Now, the goal of every investor in the stock market looking to understand how to make a portfolio for the share market, is to generate returns; to invest a certain sum of funds, and to aid those funds in multiplying in value. However, further elaborating on these goals and subsequently clarifying them for yourself could help you better understand how to make a portfolio for the share market. Namely, how much you are looking to invest, otherwise known as your investment capability, how long you are looking to invest for, and what returns you are looking to get. An investor who is looking to understand how to make a portfolio in the share market in order to make long term returns will have a very different portfolio from an investor looking to make short term gains.

Similarly, if an investor has a high-risk appetite and investment ability, their profit and return maximising portfolio will look largely different from that of an investor who wants to invest a lower percentage of their earnings, is not willing to take on as much risk, and is looking to prioritize stability over volume of returns. Clarifying this before you begin understanding how to create a portfolio in the share market will help you start off on the right foot, and afford you and your portfolio some more clarity.

2. Diversify.

Despite the large number of analysis and trading strategies and technical indicators, it is not possible for any one individual to accurately predict how the stock market will react, making any decision effectively a guess by the investor. The goal, therefore, is to ensure that your portfolio consists of not just good companies and sectors, but also a diverse set of investments.  Investing in a number of sectors, and various stocks within those sectors will allow you to spread out your investments, minimizing your exposure to systemic risk.

In addition, while your entire portfolio might be designed to cater to certain time and investment based goals, it is not necessary that it contain a single type of stock only. Mix and match stocks with various qualities in order to hedge them against each other, increasing your overall returns and decreasing your losses. For instance, including stocks which offer routine dividend payments and that are linked to an essential sector will help balance out stocks on your portfolio that are looking to make larger returns in shorter periods of time, with the downside of exponentially higher risk.

3. Keep changing things up.

The stock market is a volatile and non-stationary entity. Meaning that a stock that was performing well a year ago, needn’t necessarily perform well this year. While trying to understand how to make a portfolio for the share market, ensuring that your portfolio doesn’t go stale is a key task. Assess your portfolio in routine intervals such as monthly, quarterly, semi-annually or annually in order to make sure all your investments are up to date, and you are not holding onto stocks that are dragging your portfolio down.

Conclusion

Trying to understand how to create a portfolio for the share market can be a daunting task if you are a first-time investor. The sea of stocks, recommendations and investment options can result in severe choice overload. However, equipping yourself with the information mentioned in this article will help clear the fog a little, allowing you to make more informed decisions, and create a lean investment portfolio that best suits your investment ability and goals.