1. Oklahoma Securities Commission
Building a Portfolio
by Matt Ingram
Invest Ed®
All Rights Reserved
Oklahoma Securities Commission
July 2016

2. Things to Consider as You Add Stocks to Your Portfolio
Psychology of Investing or Behavioral Finance
Trading Costs and Order Placement
Corporate Governance
Taxes
Rebalancing

3. Trading Costs Commissions and spreads Direct and indirect costs
Investors need to be aware of different ways to minimize costs.
Order placement decisions are important.
Limit orders, market orders, stop orders

4. Corporate Governance Look for companies that put shareholders first.
Principal/Agent conflict
Avoid firms with dual-class shares.
Avoid firms that make it hard for an acquisition to take place.
There are many conflicts of interest in the board of directors.
Look for smaller firms with managers with lots of “skin in the game.”

5. Taxes! Taxes are VERY important in investment decisions.
Dividends are taxed at ordinary tax rate.
Taxes are paid on capital gains IF you sell asset.
The more you hold on to security, the lower the tax rate. Hold less than a year short term capital gains rate  HIGH
Short term capital gains tax rate = tax rate on dividends.
However, you don’t HAVE to pay capital gains taxes until you sell asset.
Retirees hold dividend-paying assets so they don’t have to pay transaction costs of selling stock.

6. Rebalancing
Rebalancing a portfolio is the process of adjusting a portfolio to bring it back to its original asset allocation.
Since assets perform differently at different times, the portfolio is likely to drift from your desired asset allocation.
Failure to rebalance means a portfolio can change risk profile over time and may no longer be appropriate.

7. Decisions, Decisions… When do I sell?
Balance of value stocks to growth stocks?
How much large cap shares, how much small caps?
How much money to put in developed markets vs. emerging markets?
REITs or other real assets?