A stock portfolio is a person or company's stock holdings; the collection of stocks tracked together is known as the stock portfolio, and from that portfolio, a person or business can buy and sell stocks in order to make the best profit. Many people or businesses continually monitor their stock portfolio to ensure the entire portfolio is reaching its earning its potential; if certain stocks are underperforming, it may be removed from the portfolio by selling it and replacing it with a better performing stock. The portfolio can contain just a few stocks, or several hundred, depending on a person's investment capabilities.
Diversification is the process of buying several different stocks and keeping them in the same stock portfolio to help balance out profits and losses. If one stock performs badly, for example, the stock portfolio may still be profitable overall because other stocks may be performing quite well. Diversifying one's portfolio is a good way to limit overall risk; if, for example, a person's stock portfolio contained several shares of stock from only one company, the person would be entirely reliant upon that company's performance for profit, and it would be subject entirely to that company's poor performance, resulting in a significant loss of capital.
An individual can develop a stock portfolio using a portfolio management system online, or by visiting a financial institution that can set up a portfolio for the investor. Online websites have made access to stocks much easier, though a significant amount of research and monitoring will be necessary for a person to be successful at investing. It is often helpful for people who are new to investing to visit a financial advisor who can walk that person through the process of buying and selling stocks, as well as properly managing a portfolio and diversifying effectively.
Hiring a portfolio manager is also an option. Such managers often work for larger or medium financial institutions, and they can take the investor's money and invest it in stocks that are expected to perform well. The investor can determine how much involvement he or she has with the investment process; some investors want to closely monitor the successes and failures of the portfolio, while others are content to let the financial experts do what they can with the money invested. An investor should keep in mind that there are significant financial risks associated with a stock portfolio, even if the portfolio is well diversified.