Today we are going to analyze your portfolio of 2-3 stocks that I asked you to pick. If you haven’t had a chance to do it yet, go to Gainy.app and pick any two stocks.
let's start with the following question:
Why did you choose those companies to begin with?
Were they the first ones that you found in the app? Did your friend recommend them to you? Or did you like their growing chart?
None of these are correct approaches because they are emotional rather than rational. And in money management rationality and systematic approach are key to stable earnings.
The first step in choosing stocks is actually setting a goal. Goals can be divided into 2 groups.
Long term. Eg. saving for retirement, education for kids.
Short term. Eg. saving money to buy a house or a car.
Once you set a goal, let's calculate the expected result.
For example, I want to have $500,000 for retirement, which I plan to have in 20 years and I put all the details into an investment calculator. It shows that with my initial capital of $10,000 I will have $429,000 in 20 years.
N.B. I used the 15% return rate, which is what a conservative investment into the S&P 500 index would yield on average.
Try and modify numbers to find suitable options. In my case the return rate of 17% will give me a desirable result. Now I understand that investing in the index alone is not the only option. I need to pick some individual stocks that would bring me higher yield.
The higher your desired yield, the higher the share of stocks in your portfolio needs to be.
For example, if I need 17% yield, 40-50% of my portfolio will be in stocks, and I can keep the rest in bonds and ETFs.
If you want 20-25% yield, then the share of stocks needs to be 60-70%
If you want an even higher yield, then the share of stocks should be up to 100%.
🌚How much risk can I take?
Gainy helps you find the answer to this with a simple question when you start using the app.
Find it out after the test on your risk profile at Gainy.
Please take the test later, and remember:
- if you have low risk tolerance it is better to invest long term and in safe instruments like ETFs, value stocks and bonds. Don’t expect high returns the next day and don’t bother checking the account every week—you won’t notice any dramatic changes.
- If you have high risk tolerance, don’t go all in. Start with little sums of money, lock in profits and buy new stocks with these profits.
To be on the safe side, start with conservative assets and modify them.
Also, it’s good practice to separate accounts for your conservative or moderate portfolio and your aggressive one. Otherwise, emotions from aggressive trading on one account can affect your long-term strategy.
Imagine you bought some company’s stock because you liked the company, it’s fundamentally strong and you want to hold it long term. And you also bought the Tesla stock which goes up and down by 100%.
The first company grows like this and you just hold it.
Tesla grows like this. You buy the dip and sell at peaks. It’s very volatile.
One day you look at your company stock and think that it grew too much and expect it to fall (like Tesla is swinging). So you sell the stocks hoping to buy them cheaper.
In reality, it had a 2-5% decline and went further up. There was no point in trading with this company’s stock.
When choosing a stock, decide in advance whether it’s a long- or short-term investment for you and set a time limit or % of upside when to sell the stock. Stick to your decisions.
As for your portfolio, make a decision whether these two companies are a long-term or short-term deal. Think about their business and have a look at the charts for those stocks. Is it a hype business or a stable one? Do they have very volatile charts with high rises and steep declines or is it quite smooth?
If you want to lose money, try some of the following:
- You are not sure how the companies make money
- Pick companies that are surrounded with negative context
- Use a broker with low rating and bad reviews (check out the best ones here)
- One of these companies is Tesla :)
- Pick companies showing a long-term downward trend(to see this, find the company in Gainy and click the 5Y period on the chart)
If none of these apply to you, then we can move forward and analyze stocks deeper.
Don’t forget to take a risk test in Gainy before buying anything. Depending on your results, our algorithm developed by a team of experienced investors, will recommend you best, safest stocks to start with.
Keep in mind the stocks you picked yourself and those that Gainy recommended and get ready for a dive into stock analysis. Next time we’ll begin assessing companies like a pro.
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