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Managing your own portfolio

  1. Determine your investor profile
  2. Define the analysis method
  3. Formulate an investment policy
  4. Evaluate and monitor your portfolio
  5. Improve your knowledge

Do you think you know enough about the stock market to make your own investment decisions? You're not alone: there are more and more self-directed investors.

Do you have what it takes to be a self-directed investor? To find out, see how comfortable you feel with the following 5 steps. Because it isn't verve or flair that is needed in investing your own savings, but rather rigour, discipline and patience. Under these conditions, putting your own portfolio together will be a very satisfying experience.

This is a critical step. Among other things, determining your profile will tell you how much tolerance for risk you have. Your risk tolerance will have a big influence on your investment policy and the type of investments you choose.

To determine your investor profile, answer the following 3 questions honestly and accurately.

What do you know about investment?

If you want to manage your own portfolio, a very good knowledge of the economy and stock markets is essential.

How much tolerance do you have for risk?

Natural disasters, political instability in the Middle East and economic problems in some countries in Europe and the United States put stock prices on a roller coaster ride in 2011. This type of situation will recur.

If stock market fluctuations keep you awake at night, it would be better not to throw yourself into buying stock.

What are your investment goals and investment horizon?

Investing to pay for higher education for your children, to finance a sabbatical or your retirement involve different investment strategies.

Your return projections must take your risk tolerance into consideration. Remember that the higher an investment's return potential is, the riskier it is.

To invest in the stock market, it is strongly recommended you have an investment horizon of at least 5 years.

Tools and tips

Your investor profile (Step 1 of 5)

Are you cautious or fairly relaxed when it comes to stock market fluctuations? This video will help you find out.

Watch video - Your investor profile (Step 1 of 5)

A variety of analytical tools are available to gain a better grasp of the plethora of economic and stock market information.

Technical analysis looks at the history of security prices to identify future trends. This lets you know when to buy and sell stock. It's a tool for the seasoned investor.

Fundamental analysis is based on the overall picture of corporations that issue securities: balance sheet, human resources policy, position vis-a-vis the competition, etc.

The quantitative method analyzes some economic variables to detect trends.

Because none of these methods is perfect, it's important to use several of them.

Complementary tools exist as well. Contact your financial institution to find out what tools are available to you.

Tools and tips

Analysis methods (Step 2 of 5)

This video introduces the analysis tools and methods you will need to make informed investment decisions.

Watch video - Analysis methods (Step 2 of 5)

This involves setting a direction for your portfolio. The direction is based on 4 principles

Diversification means a decline by some securities is offset by an increase by others.

Asset allocation must be tailored to your investor profile. For instance, if you're an ambitious investor, your portfolio will have a much higher percentage of speculative assets than a "balanced" portfolio will.

Your asset allocation also takes your needs into consideration. If you will need your money a year from now, your portfolio must be a lot more liquid than if you're paying for your retirement 30 years from now.

Entry and exit prices. Determine what price you want to pay for the securities you're interested in and what you want to sell them for. Adjust these prices regularly in keeping with market movement.

Put all of your securities under a microscope, especially the ones you're fond of. An emotional attachment to a security is not good investment policy if the security isn't hitting your targets.

Tools and tips

Investment policy (Step 3 of 5)

This video will provide 4 key tips to managing your securities well.

Watch video - Investment policy (Step 3 of 5)

Just because you've put your portfolio together doesn't mean you can stay on the sidelines! Rigour and discipline are in order.

Keep a very close eye on the stock markets and global economy: inflation rate, interest rates, unemployment rates, exchange rates, etc., will be breakfast fare.

Some events may prompt you to change your portfolio to keep it in line with your investment policy.

Comparing the return on your portfolio with the return on stock indexes can be helpful. However, comparing the returns your portfolio is earning with friends' returns is not always useful. Just because you and your neighbour are the same age doesn't mean you have the same investment goals and horizons or the same investor profile.

Tools and tips

Portfolio evaluation (Step 4 of 5)

Monitoring your securities' performance is critical. See how to keep a close eye on your portfolio by watching this video.

Watch video - Portfolio evaluation (Step 4 of 5)

The investment world is changing constantly, which means you must update your knowledge continually. Rather than being satisfied with what you already know, keep on learning.

Make sure your sources of information and analytical tools are the best ones for your type of portfolio. Contact your financial institution: it may offer training seminars.

Tools and tips

Continue to learn and train (Step 5 of 5)

A self-directed investor must keep up with emerging knowledge. Your financial institution can help. This video introduces some of the training tools available from Disnat, Desjardins's online brokerage service.

Watch video - Continue to learn and train (Step 5 of 5)

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