Building a share portfolio is executed in pieces. You start with your first investment, then your second, then your third – you get the picture. The problem is that most investors will naturally choose the most favourite investment first, then their second favourite investment and so on.
That’s a normal process to follow but in investment terms it is not sensible. That’s because the individual components of your portfolio are not the most important elements. The overall structure is more important.
And it’s more than just taking a birds eye view approach. This is about thinking carefully of your END product BEFORE you start. You almost have to consider what your ideal portfolio looks like and reverse engineer how to get there.
In fact I would even recommend considering what your ideal lifestyle looks like and how much money you would need to attain it, and then work backwards to figure out how to invest to get there.
Otherwise you end up with a mish-mash of half-hearted attempts within a myriad of varying investments. It becomes a melting pot of rubbish.
On the other hand if you have a clear agenda of earning a minimum of 5% income, a capital annual growth target of 10%, diversification across 20 companies, exposure to the UK, Europe and US, no beta stocks over 2, no dividend cover of less than 1.5, and a heavier weighting across mining stocks and utilities, suddenly you have built yourself a roadmap.
Now, you can get to build it.