Some investors are able to generate returns on their investments without their portfolios growing over time, but many would want to see their holdings on eToro increase. The way to achieve that may depend on many factors such as the amount of risk you are willing to take on, the amount of capital you have available to invest, the investment horizon, strategy, investment style and so on. Below you can find a few common methods you might consider to grow your portfolio on eToro. Remember that any operations on the stock market involve capital loss risks.
(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings. In fact, Around 68% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)
Some of the strategies below involve a more passive management approach than others, but remember that all of them involve capital loss risks. Let’s have a look at all of them below.
Buy and Hold
This is probably the simplest investing strategy out there. It involves simply buying stocks or other investment assets such as ETFs and holding them for a certain period of time, ignoring any short-term volatilities and market changes. Buy and hold is a passive strategy, completely the opposite to active trading and is based on the premise that equity should increase in value over time, especially if compounding effect is added; it is often compared to value investing. eToro offers over 250 ETFs and about 800 stocks from all over the world for you to choose from that could be used for this strategy. Oppositionists of the buy and hold argue that investors that buy and hold miss out on the opportunities that arise from market timing and short-term trades, as well as point out that the strategy is overall very inflexible. This strategy is of course not risk-less and depends on investor’s ability to pick assets that have a future potential. You might consider analyzing fundamentals of instruments invested into and eToro provides a useful summary of such information under the ‘Stats’ section, like shown on the image below.
Dollar-cost averaging is another example of a relatively simple investment strategy, where an investor chooses a certain dollar amount of capital they will use to periodically (for example, every month or quarter) buy stocks or other assets. The price of these assets may be different from one purchase to another, and when the price is high fewer shares will be purchased (because remember, we have a specific dollar amount we are investing every period), while when the price is lower, more assets will be purchased. On average then the investor is then able to lower the costs of purchases, partially reduce the impact of volatilities and potentially make a return from the investment over time. Another advantage of this method is the fact that it doesn’t require too much time in monitoring the market, re balancing and managing a portfolio.
Growth Industries Investment
Growth investing involves investing into stocks with a high growth potential. Certain types of assets or rather sectors are considered to be more growth oriented, such as the technology, construction, healthcare industries, as well as small-cap stocks of new emerging companies. You can always filter your stock selection by industry on eToro.
These aggressive growth stocks have a potential to deliver greater returns but at the expense of higher volatility and therefore risk, especially when considering young and relatively unexplored firms. Growth investing may require analyzing company fundamentals, statements and indicators to look for potential of growth over time.
This strategy involves buying assets when their price is low and selling when it is high. It requires close monitoring of market changes and investor’s ability to time the market consistently and successfully; it is the complete opposite to the passive buy and hold approach. Whether this risky strategy actually has the potential is still a matter of debate among academics and investors. eToro provides a great selection of technical indicators of all kinds that may assist a trader in market timing (which you can access on the ‘Chart’ section of each asset, like shown on the image below), but you may also consider monitoring economic and fundamental changes that happen on the market.
Despite its potential, this approach involves a great probability of capital loss risks as it requires a trader to be able to time trade entry and exit conditions well, manage their stop-loss and take-profit levels and apply leverage thoughtfully.
Diversification is often to be considered a risk management tool and not only an investment strategy. The logic behind it relies on the fact that blending in several different unrelated assets into one portfolio reduces unsystematic (also known as the firm-specific) risk of a portfolio, as when one asset is performing poorly other better performing assets can compensate for this loss. It is usually combined with other strategies, such as buy and hold, as it provides a framework for asset allocation and can help reducing company-specific risk. eToro offers a great variety of different assets for you to combine and allow your portfolio to grow organically over time with relatively less risk as well as volatility than a portfolio that focuses solely on one type of asset.
Dogs of the Dow
This is a long-term investment strategy for picking stocks that involves choosing 10 stocks with the highest dividend yield from the Dow Jones Industrial Average index (DJIA). The logic behind this relies on the premise that dividend yields are a proxy that indicate that companies issuing such stocks are at the bottom of the business cycle and the share price should increase at a relatively fast pace. The appeal of this strategy is its relative simplicity. The portfolio should be re-balanced yearly to match the updated information on the companies invested into.
Being an active trader is difficult indeed and requires lots of patience, skills and practice as well as a good understanding of technical analysis. Traders may look for ways to benefit from short-term price movements and possibly use leverage (remember that leverage can amplify losses as well as gains). There are four main active trading methods, all differing in the time frames trades are kept open for:
- Day trading, where all the trades are open and closed within a day
- Position trading, with positions being help open for a relatively long time period
- Swing trading, with position opened and closed whenever there is a break in a market trend, trying to make a return from short-term market volatilities
- Scalping, where a trader makes profits from many small trades that should add up to a large gain
Active trading requires a trader to be able to skillfully choose the correct entry and exit conditions, and employ technical tools to avoid potential losses.
It may be quite challenging to find your own strategy to grow your portfolio on eToro as well as find the time and skills to monitor the market. If you do not possess the time and the skill to set up and implement a strategy yourself, eToro offer the unique opportunity of CopyTrading, where you can choose to either copy positions of another investor on the platform or invest into a CopyPortfolio that combines various assets in itself. Note that past performance is not indicative of future results.
Choosing the best approach in for your investing and growing eToro portfolio is surely a challenging task. You need to consider many factors such as your capital, risk tolerance, skills and knowledge. Remember that investing and trading involves capital loss risks and enjoy eToro platform! best of luck.
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Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorized and regulated by the Cyprus Securities and Exchange Commission.
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