Tips on Stock Portfolio Strategies
For some, the thought of a stock portfolio raises anxiety levels. Others view the stock market as akin to a weekend jaunt to Vegas. Others fall in between, using a portfolio of individual stocks as a means to several ends, which often include a stable retirement, a college education for a child or a down payment on a new home. In any case, you can employ various strategies to maximize the returns on your investments.
Other People Are Reading
-
Dollar-Cost Averaging
-
When you dollar-cost average into stocks, you buy them in small increments on a regular basis. By using this method, you buy more shares when the stock price is low, and fewer when the price is high. This approach can mitigate risk, but more so, it puts your stock buying on autopilot. You can pay less attention to the market's daily gyrations, taking some of the stress and emotion out of investing.
Don't Overtrade
-
Actively trading a stock portfolio can make sense. As opposed to dollar-cost averaging, trading in and out of stocks can provide benefits by riding highs and getting out on lows. Be sure not to get carried away. If you trade stocks too frequently, you run at least two major risks. First, you risk leaving money on the table. Although you might abandon a dog at the right time, a lack of patience can take you out of a stock before it makes a big run. More importantly, when you trade and realize a profit, you also trigger a taxable event. You must report stock trading profits --- called capital gains --- to the IRS and pay taxes on them annually. Too much trading can lead to too many gains and a higher tax bill.
-
Use an IRA
-
One way to avoid capital gains taxes on your stock trades is to hold your stock portfolio inside a tax-sheltered account such as an IRA. You can defer the payment of taxes on these earnings in an IRA account. Although you always pay regular income tax on the entire amount of all traditional IRA withdrawals, as long as you follow IRS rules regarding qualified distributions, you don't pay taxes on Roth IRA withdrawals, including the earnings portion.
Buy Mutual Funds
-
Dealing in individual stocks may not float your boat. You may not have the time or investing acumen to construct and monitor a diversified portfolio of stocks. You can stay in the stock market, however, through the use of equity mutual funds. Mutual funds comprised of individual stocks can help you stay diversified, as they allow you to dip your toes into several areas of the market with just a few different funds. A fund that mirrors the returns of the S&P 500 Index, another that invests in large U.S. companies, one more that has all international holdings and a final selection in an economic sector you believe in can represent a well-rounded, stock-exposed portfolio.
-
