If you are in your 20s and suppose you want to retire at the age of 60 years then we can safely assume that you have around 35 years to work.
We read in finance that diversification is the key and based on some international research it is recommended that you need to have at least 15-20 shares in your portfolio. However there is also a view that being a young investor you should invest in a promising and relatively young and risky company/companies simply because you have capacity to do so or if we use pure finance language then your risk tolerance should be high. You don’t need much diversification right now actually.
Let me explain this with a case. Suppose you are 25 years old and have a stable job and you want to build your portfolio for your investment. Suppose you picked three relatively young companies with promising outlook from promising industries like Power, Textile, IT, etc. If even one of the company becomes a successful venture then you can make a lot of money. You shouldn’t think of yourself as an investor in stock market but as an investor in individual company or companies, feel as an owner of a company. Off course, these young companies must be very cheap right now and you can purchase many shares cheaply. In addition, it is possible for you to get a 0.5-1% ownership in these companies, which is a very big stake in a company if you check the number of outstanding shares of even small companies in stock market, they are in millions and total market value of one company is in billions.
Consider the attached figure. What does this figure imply? It shows that as you gets older your investment in your chosen company (or companies like we supposed above) as a proportion of your total investment decreases. When you are 25 years old your investment is entirely in your chosen company or companies. But as you get old, you start diversifying your portfolio. This graph is just an example and the exact shape of graph could be different for different investors depending on their attitude towards risk. But the principle is the same for all which is “As you get older you capacity to take risk decreases”. When you reach 60 and now you are totally dependent on income from your portfolio, you surely can’t put all your eggs in one basket. As you can see at the age of 60, your investment in one company is very small because now you have many companies in your portfolio. In fact at the age of 60 you shouldn’t be entirely invested in stock market but should have some decent portion (or even majority) of your portfolio in fixed-income.
We read in finance that diversification is the key and based on some international research it is recommended that you need to have at least 15-20 shares in your portfolio. However there is also a view that being a young investor you should invest in a promising and relatively young and risky company/companies simply because you have capacity to do so or if we use pure finance language then your risk tolerance should be high. You don’t need much diversification right now actually.
Let me explain this with a case. Suppose you are 25 years old and have a stable job and you want to build your portfolio for your investment. Suppose you picked three relatively young companies with promising outlook from promising industries like Power, Textile, IT, etc. If even one of the company becomes a successful venture then you can make a lot of money. You shouldn’t think of yourself as an investor in stock market but as an investor in individual company or companies, feel as an owner of a company. Off course, these young companies must be very cheap right now and you can purchase many shares cheaply. In addition, it is possible for you to get a 0.5-1% ownership in these companies, which is a very big stake in a company if you check the number of outstanding shares of even small companies in stock market, they are in millions and total market value of one company is in billions.
Consider the attached figure. What does this figure imply? It shows that as you gets older your investment in your chosen company (or companies like we supposed above) as a proportion of your total investment decreases. When you are 25 years old your investment is entirely in your chosen company or companies. But as you get old, you start diversifying your portfolio. This graph is just an example and the exact shape of graph could be different for different investors depending on their attitude towards risk. But the principle is the same for all which is “As you get older you capacity to take risk decreases”. When you reach 60 and now you are totally dependent on income from your portfolio, you surely can’t put all your eggs in one basket. As you can see at the age of 60, your investment in one company is very small because now you have many companies in your portfolio. In fact at the age of 60 you shouldn’t be entirely invested in stock market but should have some decent portion (or even majority) of your portfolio in fixed-income.
MARKET OUTLOOK:
Kse 100 Index is hovering around 10,900 level. Off course investor have made profits. However in order to further go up market needs three things which are (in priority):
1. Market needs a "Leverage Product" as soon as possible.
2. If the discount rate is held constant (at 13.5) in an upcoming monetary policy to be announced at the end of this month.
2. If the discount rate is held constant (at 13.5) in an upcoming monetary policy to be announced at the end of this month.
3. Issue of RGST should be resolved peacefully. In case if this is not implemented there is a very strong chance that Pakistan won't receive it's next tranche from IMF and further this could impede other aids as well.
But let me stress this again "Leverge Product seems to be the key trigger atleast for the short term".
Thanks and Good Luck with your investments.
You can post a comment if you have any question or you can send me an email at tahiradeel001@yahoo.com.
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