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How to Build a Portfolio

Ensuring security for your family into the future.

We show you how to structure your share portfolio to supercharge your future.

Resized Feb 23 Portfolio Pie Graph

Building a Portfolio of shares

Start building up a portfolio of shares over time. The stock market is one of the biggest generators of wealth around.

5 or 6 Core Stocks

Build a core of 5 to 6 large holidings in stable businesses

8 Quality Small Caps

Small Caps are great for diversification. Add exposure to different risks and industries.

6 Satellite Small Caps

Grow your wealth with fast growth Small Caps

How many Small Cap stocks should you buy?

We recommend that you buy 7 to 15 Small Cap stocks, but you don’t need to own these straight away! You can build up a Small Cap Share Portfolio over months, or even years. But your goal is a diversified portfolio with 15 shares.

Tier 1 Stocks: Build a Core with Stable Businesses

A good start is to build 5 or 6 large positions in companies that are substantial operating businesses.

Own 5-6 Core stocks

Substantial businesses mean they are able to be valued by fundamental investment criteria, and most will pay dividends.

Each day you should ask yourself: would I buy this stock today?

Each stock is 5-6% of your portfolio

Your positions should be relatively large  in the context of the portfolio, ranging from 5%-8% maximum of the total portfolio at current prices.

Buy Quality Companies

We have many examples of both Small Caps and Blue Chips that are stable businesses.

Don't ignore Small Caps in this space. A lot of little companies are excellent quality businesses. 

Tier 1 Stocks in our Portfolio

Our Small Cap Portfolio holds aluminium product manufacturer Capral (CAA), the telecommunications group Symbio (SYM) formerly MNF Limited (MNF). We won't give all our Tier 1 stocks away here! 

Don't ignore Small Caps in Tier 1!

These should be quality companies. We have many examples of both Small Caps and Blue Chips that are stable businesses. Don't ignore Small Caps in this space. A lot of little companies are excellent quality businesses. 

Richard Hemming, Editor

Tier 2 Stocks: Medium Sized Businesses

In our Small Cap portfolio we have 8 medium sized positions, which serve varied roles.

It's competitive!

This is the area where the pruning generally occurs. Don't be afraid to sell a stock.

Buy some stocks for forecast growth

The hope is that they grow into larger positions, like the speciality pharmaceutical  Medical Developments (MVP)  or the crane operator  Boom Logistics (BOL), which has already made a decent move.

Check your Diversification

Some stocks in tier 2 should give exposure to different risks for your portfolio, not reflected in the Core. For example you may like stocks that give you US$ exposure, or a small cap financial stock for alternative investment exposure, and a quality Small Cap miner.

Investment Themes

Some stocks will have greater exposure to cyclical themes; while others are selected to offer good value, which can include paying substantial dividends.

"Review, Review, Review"

We actively review the stocks in Tiers 2 and 3.

The Idle Speculator, Under the Radar Report's Portfolio Manager

Small Caps Grow

Remember that it's much easier for a small company to double or triple in value than for a Blue Chip to grow by 5-10%. Small Caps are growth stocks and when a small company grows, so does your wealth.

Our advice on timing your buying and selling

It’s worth pointing out that timing is difficult to perfect. In fact, impossible. Regular readers know that I like to Buy slowly, and if, like  Hansen Technologies (HSN)  the stock moves quite fast, we may not want to chase the price.

The Idle Speculator, Under the Radar Report Portfolio Manager.

Tier 3: Satellite Small Cap Stocks

We hold 6 smaller positions in stocks that could become tier 2 or even core.

Power in Small Caps

These stocks can really grow! You never know your luck and these small companies can grow into stable Tier 2 businesses.

Each stock is only .5% of your portfolio

We have to be readily prepared to lose that sort of money with no regrets. Nobody, not even Warren Buffett or [INSERT THE NAME OF YOUR MOST ADMIRED INVESTOR HERE], gets them all right, even in bull markets. 

Don't invest too much at the start

One key to making money is minimising your losses, which means not investing too much initially.

Reduce your risk

A successful investment portfolio is by definition one where your mistakes aren’t big enough to damage below the waterline.

Grow your confidence

With smaller positions you can start to build up as your confidence in a stock grows.

New industries

We have started building up exposure to newer industries, and emerging business models. 

How much you pay determines your future profit

The most important component of your future returns is the price you pay for any investment.

The Idle Speculator, Under the Radar Report Portfolio Manager.

FAQ on Building your portfolio of Shares

Why diversification counts

No investing is risk-free and you can't guarantee that the first stock you pick will shoot the lights out. Through diversification you can reduce your risk and with Small Caps you can buy diversity cheaply.

Do Small Caps pay Dividends?

50% of our Small Caps pay dividends. In a portfolio context, dividends help to pay fees, taxes and provide a tangible return on your money. Stocks that don't pay a dividend, are 100% growth investments. This is not a bad thing, but there is more risk.

Does liquidity matter?

Liquidity is a factor in entry and exiting Small Cap stocks. Buy slowly to mitigate liquidity factors. To be cautious, you buy only 10-20% of your anticipated holding to start with, and then you wait. For example, if you plan to invest $2,000 in a stock, you can start and buy $400 worth of shares. Patience is the key.

Selling & Taking Profits

If a big % of your portfolio is in a small cap, it is often best to take some profits early. 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 share holding the more important it is to anticipate news.

Know your risk profile

Your investment risk profile will help you choose the Small Cap stocks that are right for you. Seek independent financial advice and regularly review your financial goals.

TAX in Australia: How long do I own a stock?

Holding shares for a year may make the most sense, because your capital gains tax exposure will be reduced. Please seek independent tax advice.

How can I reduce risk?

"One of our key mantras is that subscribers should buy cheap and be patient."

We hunt for cheap Small Cap stocks as buying as cheap as you can will protect your portfolio risk.

What am I aiming for with Small Caps?

You want two or three winners, which are currently small companies (or Small Caps), but which have the capacity to become much bigger.

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.

Keep some Cash

We like to keep up to 25% in cash so you are always liquid to take advantage of buying opportunities.

How do I start?

Start with one or two stocks and build your confidence. Then you can really start to generate both income and most importantly, capital growth.

Remember to Diversify
Don't put all your eggs in one basket. It's all about building a diversified ASX share portfolio. Small Caps are an important part of this strategy. 

Start building your Small Cap Portfolio now

Access our 10 Best Stocks to Buy Now

Your Share Asset Allocation: Blue Chips versus Small Caps

We often say that our preferred allocation is for:


Small Caps


Blue Chips

100% Small Caps

But it’s also possible to invest solely in Small Caps, where you can get a well diversified selection. This is definitely a strategy for those who can handle more risk and volatility. It’s important for us to emphasise that we also recommend that people do not borrow to invest at all, particularly not in individual small caps. And remember to diversify.

Beginner's Guide

If you have never invested before or you are new to investing, start by following our beginner's free guide to investing

Learn more

Buy quality companies at the right price

The most powerful thing in investing is buying quality companies at the right price. A portfolio approach can generate returns of 10%+ over the long-term.

Buy Quality companies

A combination of ASX Blue Chips and quality Australian Small Cap stocks

Understanding the ASX

There are over 2,200 listed companies on the ASX and the biggest seven represent about half of the $1.3 trillion dollar market capitalisation. These are the big four banks, Rio Tinto and BHP Billiton and Telstra.

Why Blue Chips

There is a place for both investing in Blue Chip stocks and Small Caps in a portfolio. Blue Chip stocks at the big end of the spectrum definitely have the advantage of being less likely to go broke. The financial crisis proved that point.

Why Small Caps

At the Small Cap end, although there is more volatility, there is more diversity, and more potential to boost your portfolio’s returns.

Doubling in size

It’s must easier for a company with a market cap of $100 million to double and triple in value, than it is for one that is worth $1 billion.

Dollar Cost Averaging

When you build up a holding in a stock over time, you will buy at different prices. Dollar cost averaging is the average price you have paid. This can be a profitable trading strategy.

Blue Chip Price Targets

You can use our Blue Chip Value Report with our Price Targets on over 40 Blue Chip stocks to manage your Blue Chip portfolio.

10 years helping ASX DIY investors

Our independent team of share analysts have over 150 years of collective experience working in the industry.