Under the Radar Report

How to Start an Investment Portfolio

11 May 2020
Richard Hemming

Building a small cap investment portfolio can be daunting, but it is essential to know how to start investing your money so that you maximise your portfolio growth

How many small cap stocks should you invest?

To start a new portfolio, we recommend you hold seven to ten small cap stocks. However, you don't need to invest in these straight away. As a beginner you can build up a small cap portfolio over months or even years.

Why seven to 10 small cap stocks in my investment portfolio?

Beginning your investment portfolio is not a risk-free approach. Nobody can guarantee that the first stock you pick to invest in will be a success. When building your investment portfolio you need some diversity to avoid the risk of having several good investment ideas but only having a dud. 

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Liquidity is an important factor in entry and exiting small cap stocks 

When you are building an investment portfolio, it is essential to invest slowly to mitigate liquidity factors. This refers to challenges around getting in and out of a stock position when you start to invest your money. Under the Radar Report recommends investing 10% to 20% of your anticipated holding to start with, and then you wait. For example, if you intend to invest $2000 in one small cap stock, start by investing up to $400. Patience is the key when building your portfolio. 

A quick note if you are beginning to invest in relation to exiting positions. If you have a large small cap holding, it is often best to take some profits early. As a small cap investor, it is always best to anticipate news, rather than react to it. This is easier said than done, but if you are reacting to the news, then essentially, it's too late. The bigger your shareholding the more critical it is to anticipate news. This is essential when building your small cap investment portfolio. 

Asset allocation for your investment portfolio

When building a small cap investment portfolio Under the Radar Report recommends cash (0-25%), small cap (20-30%) and blue chip (50-75%). Under the Radar's stock reports are a useful way to manage the various stocks you Buy, Hold and Sell. 

It's also possible to invest your money solely in small cap stocks, where you can get a well-diversified selection for your investment portfolio. This is definitely a strategy for small cap investors who can handle more risk and volatility. It's important to emphasise that Under the Radar Report recommend that investors do not borrow to invest at all, particularly not in individual small cap. And remember to diversify when starting your investment portfolio.

What are you hoping to achieve with your small cap stock portfolio?

When starting your investment portfolio you are looking for two or three winners, which are currently small companies (or small caps), but have the capacity to become much bigger just by doing more of what they're now doing. The flip side is that you will have two or three poor performers. The key here is that your losses are limited, but your gains are not. 

Cheap small cap stocks to buy for your investment portfolio.

The benefit about investing in small cap stocks is that they tend towards being cheap because they're small. Buying as cheap as you can will protect your portfolio risk but offer your investment portfolio growth. To start your investment portfolio, invest your money is seven to ten small cap stocks. 

What about dividends with small cap stocks?

The more a company is achieving its operational goals, the more important dividends as a component of your investment return. When you are buying a small cap stock for your investment portfolio you are buying for a certain amount of dividend, plus a certain amount of hope value. If there is no dividend, then it's all hope value. This is not a bad thing, but you need to realise that there is much more risk involved in the latter when starting your investment portfolio. 

In a portfolio context, dividends help to pay fees, taxes and provide a tangible return on your money. In Under the Radar stock reports subscribers view which of our small cap stocks hold dividends. Under the Radar stock reports also show the forecast dividend yield for each of our small cap stocks, which is an important factor when starting your investment portfolio. 

How long should I hold onto my small cap stocks for in my investment portfolio?

We are never going to time our entry and exit points perfectly when investing and starting a portfolio. Our preferred holding period is in the words of Warren Buffett, "forever". Unfortunately very few stocks will have that capability to maintain growth for your portfolio through good times and bad. In the Australian tax situation, holding on for a year makes most sense, because your capital gains tax exposure will be reduced. Rarely do we look for trading situations.        

What is your own investment risk profile for your investment portfolio? It will help you invest in the small caps right for you.

Under the Radar Report does all the hard work so you don't have to. Our team of analysts with over 150 years in the industry have filtered through over 2,000 small cap stocks. Each week subscribers gain access to some of the 100 small cap stocks that our analysts agree offer the best risk/return for subscribers investment portfolios. Subscribers enjoy building their investment portfolios with our clear Buy, Hold and Sell recomendations. It is also a good idea to think about how you have made money with past investment and correlate that experience with any money making ideas.

Under the Radar Report is independent. Our small cap analyst team is experienced. Our recommendations are based on the stocks that our independent analysts have selected after thorough research and reviews. Our stock report has a proprietary process in order to select for Small Caps that match our criteria. In addition to analysing company announcements and financials, we spend a great deal of time speaking to the management of the small cap company. 


Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.