Would you like to add a simple stock portfolio to your personal assets? Maybe you’ve heard other people talk about their own stocks and thought, “Why don’t I build up my asset base with a small collection of securities?” The good news is that anyone can do it, and you don’t need to be wealthy or a “genius-level” investor to accumulate a basic, long-term group of corporate securities. If you go about the task in a methodical, commonsense way, you can create a profit-generating portfolio within a year or less. Consider the following steps for starting on the road to financial freedom with your own portfolio of securities:
Organize Your Finances and Get Debt Under Control
First things first. Make an organized budget if you don’t already have one. It’s the only way to know where your money is going when it leaves your hands. If you need help preparing a detailed monthly budget, consult a professional financial counselor. Eliminate as much high-interest credit card debt as possible before you begin purchasing stocks.
Another smart way to organize and minimize debt is to check out this site to consolidate multiple student loans into a single, simple monthly payment. Work with a private lender after doing a bit of research on the topic yourself. It helps to understand the basics of why consolidation makes sense, even when you have a pro assisting you. There is an excellent online guide you can use to learn about your consolidation options and see which one suits your particular situation.
Keep Things Simple
Include no more than 10 stocks in your entire holdings. Don’t use any fancy selection strategies or technical indicators to choose ones that are about to take off. That’s not what this is about. It’s focused on choosing fundamentally sound companies that offer dividends on a regular basis and then reinvesting those dividends directly into additional shares.
Do some online research and find a list of companies that offer DRIPS, dividend-reinvestment programs. Don’t worry, you’ll still have plenty of choices because there are plenty of large, established corporations that have been offering DRIPS to the public for decades. It’s not a new, unusual, or secret way to invest. Many individuals and institutions take part in DRIPS. Assemble a list of 50 or more companies that offer this kind of reinvestment. From those, you’ll be choosing your 10 holdings. Now is the time to do research and locate the best candidates for your long-term assets.
Use the DCA Technique for Predictable Budgeting
There’s no secret to the DCA method. The letters stand for dollar cost averaging and the approach is utterly simple. It’s also a prudent way to amass a respectable folder of securities within a couple of years. Simply put, DCA means putting the same dollar amount of funds toward your account each month. That way, you don’t need to pay attention to fluctuating share prices or concern yourself with acquiring a set number of shares at a time. Plus, because most DRIP programs allow you to purchase fractional shares, you’re covered both ways. By combining the prudence and predictability of DCA with the flexibility of dividend reinvestment, you can be off to a solid start.
Aim for Long-Term Growth
If you have tendencies to want to make a quick profit in the market, banish the thought. Enhancing your holdings means getting in for the long haul. This effort is not about making a killing in a fast-moving stock. It’s also not about swing trading or day trading. Those practices are worthwhile in their own ways and in certain situations. But for creating a simple collection of shares that will serve you in your middle or later stages of life.
Use a No-Commission Broker
You won’t do yourself any favors by paying a professional to feed you tips or investment advice, especially if they’re charging you for the service. Stick with no-commission or very low commission, online brokerage platforms. The market has changed in the past two decades, and one of the better changes has been a transformation to minimal commissions and all-online transactions.
Another wise rule, as long as you’re choosing a broker, is to work with one that has a track record and is respected in the industry. It’s easy enough to gather information about brokerages you have on your radar. It’s best to read many customer reviews from the better review sites. See what people think and try to understand their reasoning. Avoid putting faith in reviews that merely criticize or praise without giving reasons. It’s highly probable that those are false reviews. Look up profiles of the biggest brokerage firms on financial websites to see who specializes in what.
Learn How to Report Stocks on Your Tax Return
Reporting transactions on your annual tax return is not complicated. If you purchase for the long haul and don’t engage in dozens of buys per month, you’ll be just fine. The IRS kindly provides taxpayers with a form number 8949 on which to report all our securities’ buying and selling. Your tax prep professional can fill this out for you via standard software.
Still, it helps to know what info they’ll need to fill in the blanks. For each transaction, you need to list your initial cost, the purchase date, the sale date if applicable, and the sale proceeds. After that, the software and our tax preparer can do the rest. If all you do is buy, and don’t sell anything, you’ll not be liable for any taxes on the form 8949 transactions. It’s only when you sell something that you’ll have to pay tax.
Review Companies Before Buying
Stick with the list of DRIPS when you select the corporations whose shares you purchase. From that list, research the overall financial health of the companies. See how the business media and professional investment advisors rate them. Be aware of bankruptcies, pending legal cases, new products, management changes, and other signs of good or bad things to come. There are hundreds of websites that will give you a numerical value, from one to 100, for any stock symbol you enter. Use this service as a guideline rather than your sole reason for making a selection.