Hypothetical stock portfolios are sometimes called practice portfolios or stock watch lists. Investors use them primarily to track a particular security or market's performance before investing cash. Strategies for tracking a hypothetical portfolio's performance are similar to the strategies investors use when tracking the performance of a funded portfolio. Investors have several options for tracking hypothetical portfolios. Some methods are as simple as making a list or spreadsheet of performance measurements for various stocks, while other methods are more sophisticated and use software to monitor the portfolio's performance.
Things You'll Need
- List of investments
- Performance measurements
- Tracking method
Tracking a Hypothetical Portfolio
Identify the types of stocks and industries in which you want to invest. List them in a spreadsheet or word processor along with the performance benchmarks you plan to follow. A stock's daily price and how it has changed over the previous year are strong indicators of a stock's performance, according to Morning Star. Monitor each security's volume and dividend payouts as well.
Create several portfolios. Hypothetical portfolios don't cost money, so consider using portfolios that each monitor a different industry or that each serve a unique purpose. For example, one portfolio could track risky energy stocks, while the other could represent established companies that do not pose much risk to your money.
Consider using web-based market-monitoring services. Morning Star and Google Finance, for example, both offer free tools for creating and monitoring hypothetical portfolios. Services such as these take a lot of paperwork out of monitoring a portfolio's performance, and they also can generate customized charts and graphs.
Compare your portfolios to each other regularly, as well as to other major market indices such as the S&P 500. Day-to-day comparison and comparison at regular time intervals allow investors to account for the various reactions of potential investments to market shifts and other potential sources of volatility.
Record each stock's performance each trading day. Computer software or web-based tracking applications can record performance measures automatically. As the data accrues, determine which performance indicators, such as dividends, price stability or earnings-per-share, are important for you as you monitor the performance of individual stocks in the portfolio. Drop under-performing stocks, and readjust your portfolios as necessary to stay on track in meeting your goals.
Analyze the data consistently and regularly. Look for patterns in your portfolios and their performance relative to market fluctuation and industry-specific conditions. Changes in a stock's price, or in the overall value of a portfolio, is not the only way to gauge its performance. Often, a stock's trading volume and whether its company pays dividends indicate the investment's profitability and solvency.
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