Affordable investment portfolio - the way from 50$ to 1000$
[info_block align=»right»]Фондовый рынок устроен так, чтобы перераспределять деньги от активных к терпеливым[/info_block]
Quite a lot of traders are spoiled by other people's success stories, ideas of fast enrichment and hope to find the so-called "trading grail". In the absolute majority of cases it all leads to losing a trading deposit and regular losses or to refusal from trading at all.
And in fact, many of us simply forget about the main purpose of the existence of the stock market, which is investing. I have encountered two main groups of opinions about investing.
- The first opinion is that you can't make much money on investing.
- The second is that investing is the lot of rich people.
It should be noted that the world knows many billionaire investors and multimillionaires, but I do not know any intraday trader or scalper in this weight class. In support of this, I will quote one of the most prominent investors of our time, Warren Buffett: "The stock market is designed to redistribute money from the active to the patient".
My point is that it's better to earn moderately and constantly than to lose regularly in the hope of exorbitant interest.
- First, investing over time will make you wealthy,
- Secondly, your nervous system will remain healthy.
- And third, if you stay in the market for a long time, you will still move to medium or long term trading horizons. This is the normal evolution of a trader.
How much money do I need for my investment portfolio?
Do you need a lot of money to invest? Absolutely not! 50-100$ is enough to get you started. In investing, the main thing is not the minimum amount, but the development of investment habits, i.e. the skill to save money for further investment. For example, saving 10% of all cash receipts is a fairly popular figure. In general, Knowing how to set aside money to invest is half the success, no less. Thus, the growth of your investment portfolio will be additionally ensured by a constant inflow of funds.
Next, let's look at the trading instruments we will use. As it is clear from the title of the article, we are talking about affordable methods of investing, so we will use the services of dealing centers, or rather their tools - contracts for difference on shares and ETFs.
How do I start my first investment?
[info_block align=»right»]Нужно выбрать лучшие акции, которые активнее всех растут и платят самые большие дивиденды.[/info_block]
Let's start with the case where we have a very small trading deposit - at the level of 50-100$. In this case we do not have any special options, and we can invest in index ETF (exchange-traded fund), such as SPY (alternatively QQQ or DIA).
SPY is an ETF that consists of stocks in the S&P 500 index in the same ratio as the index itself. Thus, by buying one SPY instrument, we acquire a portfolio of the top 500 stocks. Similarly, QQQ duplicates the NASDAQ 100 index and the DIA fund duplicates the Dow Jones 30 index. These indices have a very high correlation with each other, so all we have to do is choose one of them. The only difference is the price.
At the moment, the cheapest is QQQ, its value is 120$. Therefore, if we have an initial deposit of 50-100$, the amount will cover 40-80% of the value of the asset. Are there risks in this? Yes, there are, because in. We have to work only on our ownBut we are talking about the initial investment (initial investment). But we are talking about the initial investment (the initial investment), and for it we will still use margin. Indices move quite slowly, and they rarely have drawdowns greater than 50%.
Once again, leverage is used only for the first investment, over time, due to additional investments and dividends, we will go to trade "on their own". Also, it is advisable, even at the initial stage, not to take a position with a leverage greater than 1:2. Later on, to avoid the desire to take risks, you can set the margin for the account to 1:1, so you will not be able to trade on borrowed funds.
What dealing center to choose?
So, now that we are getting to the technical issues, I will tell you about some important points in choosing a dealing center. So, your brokerage company has to support operations with CFDs, and of course it has to be reliable. For the investments to be effective, it is better to open a swap-free account, because in the long term swaps will take away quite a big part of the profit.
Another important factor is that your DC must pay dividends on CFD. At first glance, these are not large sums, but over time, due to the compound interest effect, dividend reinvestment income grows progressively. How dividends affect the growth of a trading portfolio can be seen in the chart below.
Other indicators, such as commissions or deposits, are not very important to us, because we have a long-term trading strategy, and we will not have many trades.
How to increase the profitability of your investment portfolio?
Let's move on. A little time has passed and our deposit has grown to 500-1000$. Now we can increase the return of our portfolio by selecting the best stocks rather than copying the index.
How can you improve the composition of your portfolio? It's simple: We need to choose the best stocks, which actively grow and pay the biggest dividends.. And finding them is not a problem, especially since the work of finding them has already been done for us.
There is a group of companies called the Dividend Aristocrats. Dividend aristocrats are companies that have been steadily increasing their dividend payouts over the past 25 years. In other words, these are companies with fully established and well-developed businesses that increase their profits year after year. Also, a basic indicator of such companies is their financial health.
Finding such companies is quite easy. Just type "dividend aristocrats" into the search engine and you will easily find this list of more than 50 companies. We don't need to use any additional screeners or filters. It's clear in words that these stocks are better, and the chart shows it even better:
The graph takes into account the reinvestment of dividends. We can see that the adjusted investment portfolio outperforms the normal portfolio by almost 100%, and with progression over time. In addition, I should clarify that aristocratic companies pay dividends on average 50-100% higher than the market average.
Choosing the best of the best promotions
But 50 companies, of course, we will not take. First, we don't have enough of our deposit (as we wrote above, we now have 500-1000$), and second, the CFD listings of a regular dealing center usually do not have a full set of stocks from the dividend aristocrat group. Even if we do have a lot of the securities we need, though, we're better off reducing our portfolio.
We can do this without losing diversification or increasing profits. To do this, we need to choose a portfolio of aristocratic stocks that belong to different sectors. These companies are present in 10 sectors of the stock market, so we can choose one stock from each sector and our portfolio will consist of 10 elite securities.
But this is ideally when the brokerage company offers a wide range of CFDs on shares. As a rule, however, the list of available instruments is quite small, and there are even fewer aristocrats in it. I have done a little analysis and selected for you the stocks that are the most common among the available instruments. These are the securities represented by the tickers KO, PG, WMT, MMM, JNJ, MCD, XOM and T.
How to balance your investment portfolio?
But that's not all! I'll tell you another one The secret to higher returns of your investments. It's called internal portfolio balancing.
The internal balancing of an investment portfolio consists of constantly bringing the funds invested in each individual investment to an equal share relative to the entire portfolio. I.e. if one asset went up in price, and the second one went down in price, we close a part of position in the first one and buy the second one with this money. Here is an example, the figure shows the usual index SP500, and the same index, but with the internal balancing. As you can see, the balancing of the portfolio significantly increases the return over a long period of time.
How often do you have to do the balancing? I think that once a quarter is enough.
- First, during this time, stocks can more or less rise and fall between their averages, and there will be something to balance.
- And secondly, balancing is a trade for which you have to pay a trade commission, so the more often you do it, the higher the costs will be.
Total
And at this stage, we will profit from investments and constant deposit replenishment through investment culture (10% of earnings). At the same time, we will improve performance by reinvesting dividends and selecting the best stocks (dividend aristocrats), as well as by balancing the portfolio on a quarterly basis.
[info_block align=»right» linkText=»Арбитраж на криптовалютах – пока еще эффективная торговая стратегия» linkUrl=»https://mr-trader.com/learn/forex-investicii-uspeh/arbitrazh-na-kriptovalyutax-poka-eshhe-effektivnaya-torgovaya-strategiya» imageUrl=»http://files.fortrader.org/uploads/2016/11/bitcoin-litecoin.png»]Посмотрим, как использовать арбитраж на криптовалютах.[/info_block]
In fact, there are many methods of increasing profits, the main thing is not to stop in your investment education. Work on yourself, learn from other earning investors, adopt only the best practices - this is the key to your success as an investor.
As a conclusion, I want to emphasize - the earlier you start managing your portfolio, the faster you will become wealthy. Big money is made over long time frames. As the legendary Jesse Livermore used to say: "Big profits don't calculate, they hatch."
Thank you for your attention and have a great investment!