by Kent Moore

Created on: June 17, 2009

Anyone planning to invest in shares of individual companies must be prepared to build a diversified portfolio of individual stocks. It's the only way to keep your money as safe as possible. If you are someone that has just started investing and don't have much to invest, buying shares in individual companies is not the best strategy. If you want to gain exposure to equities and you are just starting to invest, pick some quality equity mutual funds.

That being said, here are some tips on how to safely get started investing in shares.

Focus on the long-term

The best strategy for individuals is to buy a mix of quality investments and hold them for the long-term. Your individual investment objectives will determine the proportion of your portfolio that should be exposed to equities and this, generally speaking, will decrease over time. Once you know the portion of your portfolio that will be exposed to equities, you can then decide what types of stocks you want to own. Some stocks are underpriced and have room to grow, but don't pay out regular dividends. Some stocks are underpriced and pay out regular dividends. Others will grow slowly over time, but pay out a safe and consistently increasing dividend.

The three keys to building a diversified portfolio

1. Quantity | If you are not going to own any mutual funds, you will need at least 25 different individual stocks to have a well diversified portfolio. If you have been investing in mutual funds and are looking to supplement your fund holdings by buying individual equities, than you can reduce the number of individual stocks from 25 to 15.

2. Sector weighting | Another part of building a well diversified portfolio of individual stocks is ensuring your holdings are spread out over various industries: financials, health care, industrials, energy, technology, communication services, utilities, consumer discretionary and consumer staples. By spreading out across different sectors, your portfolio won't be crushed by the collapse or fluctuation of one particular sector.

3. Country weighting | Holding the appropriate number of individual equities in the various sectors is not enough. You also need to diversify beyond the borders of your own country. This way if there are troubles in one country, the impacts on your overall portfolio will be reduced. Another reason is that some countries are stronger in certain industries than others. For example, a Canadian investor would be hard pressed to find a Canadian company

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