Building a share portfolio

Because a large number of investors received shares through being members of companies that listed, such as AMP and NRMA, in many cases this means investors aren’t diversified enough. Most market watchers believe a portfolio of 10 companies is enough to give you adequate diversification without monitoring them being too big a task.

Ideally you should spread your investments among a variety of industries although you might choose to have two companies in the same industry if their business is sufficiently different to give you diversification.
It is an advantage to invest in companies that you know something about as you will have a more comprehensive knowledge of what factors are affecting the industry.

Learn more: Go forth and diversify to beat blues , The Sun Herald, 09 Feb 2003
Reckon you'd be crazy to go out and buy shares right now? Well, think again. Business editor David Potts shows how to turn these gloomy times to your advantage.

When to buy. When to sell.

Knowing when to buy and sell shares is the million dollar question. If you are investing for the long-term the right time to buy is now. Of course if the shares were to drop 20 per cent tomorrow, you would be sorry you had not waited a day, but many an investor has missed out on good opportunities by trying to pick the market.

Don’t try and be a bottom picker. If you continue to wait before investing in the sharemarket, you will never invest and consequently miss many opportunities.

Dollar cost averaging

Dollar cost averaging is a technique that helps you iron out the swings in the market. If you buy $1000 worth of shares in a company every month for a year you would find that some months you got more shares than others. That is, when the price was high you bought fewer shares, and when the price was low you bought more. If you averaged out what you paid for each share during the course of the year, the fluctuations should have largely been ironed out.

Dummy portfolios (watchlists)

If you're hesitant about which shares should make up your portfolio, why don't you monitor a dummy portfolio for six months and see how you go? Meanwhile you can be accumulating funds to invest as well as learning about how to invest.

• Create a shares watchlist on Moneymanager and monitor the performance of the shares you’re interested in over a set period such as six months.

Share clubs

Joining a share investment club can be a good way to learn about the sharemarket and hopefully make money at the same time. Share clubs have been springing up around the country and involve a group of friends or acquaintances who get together to discuss share investing with the aim of investing in a number of shares. Each member contributes money and carries out research on stocks. The downside is that sometimes you may not be in agreement about what stocks to invest in so consider this option carefully.

Borrowing to invest

Using the equity in your home as leverage to invest in the sharemarket is becoming a popular strategy. However, the bottom line is that you are borrowing the money- a practice called gearing. If the value of your investment falls you will still have to pay back your loan and you may also be up for a margin call from the company you borrowed the money from.