Build your first stock portfolio

It's the big step.

You've owned mutual funds for years. And maybe your company's stock. Or a few shares you inherited from Aunt Bernice.

Now you want to own stocks. A portfolio of them. To really invest. But you're not sitting on a fortune, and you don't have time to do the scads of research you think it takes.

Fear not. There are ways to get started building a portfolio that don't require huge amounts of time or money. Just take the time to answer a few questions and set a few goals. In no time you'll have a portfolio that you can monitor as much or as little as you like.

Define your goals

• Capital appreciation. Your primary goal is to grow the value of your portfolio. A caution: The best capital appreciation prospects are usually the most volatile, and hence, the riskiest stocks.

• Balance of capital appreciation and capital preservation. You want to grow your capital but without undue risk.

• Capital preservation: You want to achieve reasonable returns but priority No. 1 is preserving your existing capital. This is the lowest risk category.

Pick your portfolio objectives with your risk tolerance in mind. If you're likely to lose sleep when one of your stocks drops 10%, avoid the pure capital appreciation portfolios. Conversely, these portfolios might be your bag if you crave excitement and want something to talk about with your friends and co-workers. Some investors put their "serious" money into low-risk portfolios, but allocate a small amount of "fun" money for speculative portfolios.

Do you have the time?

• High. Check on stocks daily, or at least, weekly.

• Medium. Check on stocks weekly or, at a minimum, monthly.

• Low. Check on portfolio only occasionally.

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Spread your bets

All selection strategies, no matter how good, usually come up with at least one or two clunkers. With only a few stocks, one bad apple will sink your returns. At a minimum, each portfolio should contain at least 10 stocks, and 15 would be better.

Whether that's practical depends on how much you're planning to invest.

Certain stockbrokers, such as ShareBuilder, provide cost-effective solutions for investors who want to establish multistock portfolios with relatively small investments.

But even with ShareBuilder, it would cost $20 in fees to set up a 10- to 20-stock portfolio. While that doesn't sound like much, it amounts to 5% of your total if you're investing $400. As a practical matter, I suggest a minimum $800 initial investment to keep costs down to a reasonable level.

Here's how to use MSN's Deluxe Screener to build individual stock portfolios matching each investment category.

Category: Momentum

Momentum-stock selection strategies are the favorites of hedge-fund managers and other pros because they're effective at spotting growth stocks likely to move up fast. Although details vary, momentum strategies share two common characteristics: They require stocks with a combination of strong price charts and strong recent earnings growth.

This particular screen looks for profitable small companies that have outperformed most stocks over the past year and are trading near their 52-week highs. They must have recorded at least 18% year-over-year earnings growth in their last quarter and have some institutional ownership. Here are the stocks turned up by the screen when I ran it in mid-August 2006.

Click here to get the current picks. To build a momentum portfolio, buy equal dollar amounts of each stock. Because these are "hot" stocks, you must watch them closely, preferably, daily. Sell any stock that falls 10% or more from its recent high. Rerun the screen when your portfolio gets down to six stocks. Sell any stocks that don't show up in your new screen.

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