Investing in the stock market: Plan your stock portfolio for maximum success

Simply put, a well-constructed stock portfolio will make your life easier and maximize your gains.

Early in their investing careers, many investors have only a vague idea of the value of a planned portfolio when investing in the stock market.

When you try to pick a handful of stocks that will all beat the market, you are asking a lot of yourself. No one, not even people that devote their entire lives to it, has ever been able to consistently pick stock-market winners over long periods.

On the other hand, it’s relatively easy to acquire a balanced, diversified portfolio of mainly high-quality dividend paying stocks, spread out across the five main economic sectors: Resources & Commodities, Finance, Manufacturing & Industry, Utilities and Consumer.

Spreading your holdings out across the five sectors helps you avoid overloading yourself with stocks that are about to slump because of industry conditions or a change in investor fashion. By diversifying across the sectors, you increase your chances of stumbling upon a market superstar – a stock that does two to three or more times better than the market average. These stocks come along every year. By nature, their appearance is unpredictable: if you could routinely spot them ahead of time, you’d quickly acquire a large proportion of all the money in the world, and nobody ever does that.

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Speaking very generally, stocks in the Resources & Commodities and Manufacturing & Industry sectors are apt to expose you to above-average volatility, while those in the Finance and Utilities sectors involve below-average volatility.

Consumer sector stocks fall in the middle, between volatile Resources and Manufacturing companies and more stable Finance and Utilities companies.

We generally feel that people who are investing in the stock market should hold a total of 10 to 20 mainly well established, dividend-paying stocks, chosen mainly from our Average or higher Successful Investor Ratings and spread their holdings out across most, if not all, of the five main economic sectors. If you hold over $250,000, you may want to go above 20 stocks, but only if you have time to stay on top of them.

However, there’s no set minimum needed to buy a balanced portfolio of stocks. You could build one for as little as $10,000. Just buy five stocks, with one from each of the five economic sectors. Mind you, you’ll have to accept a bigger proportional commission expense than with larger stock purchases, but it will still be well below the MER on most non-index mutual funds.

We think our advice will give you above-average results — especially when you follow it consistently. If you think of and plan your investments as a portfolio, your results will become more consistent, less time consuming, and more satisfying than ever before.