TIPS FOR GROWING A SMALL PORTFOLIO
- Patience – Having patience is key because growing capital takes time. It is important to be patient and NOT take big risk with your capital in order to make it grow faster.
- Protect your Capital – This is very important. Do not take big risks, do not follow rumours or speculate. Each time you consider taking a trade ask yourself do you understand what this company sells? Do you know how they make their profits.
- Do not invest in start ups – why invest in a company that has no profits, let others take the risk, you can still be there when it has a solid balance sheet. Take the time to do your research, why invest your hard earned money on what could be a gamble, always do your due diligence.
- Cash – Do not trade with all your capital at once, always keep some cash for periods of decline. Add cash to your portfolio on a regular basis. Only put in what you can afford, do not trade with the grocery money. Your life style should not change if you lose the capital you have invested in the markets.
- Power of Compound Interest – Reinvest your profits this will help grow your capital quicker.
- Trading Strategies – Know your strategies well. There are multiple strategies that you can use in the markets, choose one that suits your trading style – do you want to buy and sell stocks, do you want to trade options, become an expert in that strategy. If a strategy is consistently failing you move on to another. Find a strategy that suits you.
- Profits – take your profits often and close out positions. Banking your profits little and often reduces risk and frees up the capital to be reinvested in other trades. Start off small aiming to earn maybe $100 or $200 per month trading. Once you reach your goal consistently then increase it, compounding as you go.
- Plan B – always have a Plan B – What if the trade goes against you? Protect your position or learn how to earn income even when the original trade is no longer profitable. You will not win 100% of your trades.
- Paper trade – This is an invaluable tool with which to learn to practise your strategies. Loosing real money while trying to learn a strategy is foolish. Paper trade – buy and sell in real time, study your winners and more importantly study your losers to determine what went right and what went wrong. You can then duplicate your winners and correct your losers. Once your losers are rare and you are consistently profitable then you are ready to put your real money in to trading.
- Asset Allocation – It is very difficult to split your capital in to equal different sectors let alone companies when you have a small portfolio. Concentrate on the strategies in the stocks that are consistently performing well. Even Warren Buffet at times has only had one or two positions. The trades that are generating the most consistent winners are those that should have the most capital allocated to them.
In Summary growing a small portfolio takes time, dedication and is not without work. If trading is something you are keen to learn and enjoy doing then it is not so much work as it is enjoyable and interesting. Do it yourself investing can be rewarding both from the satisfaction of watching your assets grow and learning different strategies in order to enhance that growth and protect your capital.