Tinkering with a portfolio too often could leave investors playing the Telegraph Fantasy Fund Manager competition languishing at the back of the pack.
Those in the contest have just three months to make the highest returns they can. With no trading costs to consider, some could be encouraged to try their hand at trading – buying and selling on a daily basis – rather than investing.
Those who want to pick stocks on a daily or weekly basis should be aware, however, that even professional investors trade less frequently than you might expect.
According to data from IG, a broker, over the past three months, professional stock market investors on their site made an average of three trades per month. The three most-traded British stocks by the professionals over this time were BP, Lloyds Banking Group and Royal Dutch Shell.
There is no right or wrong answer when it comes to how many trades investors should be looking to make in a three-month period. However, which style of investor you are will determine how frequently you will want to make changes to your fantasy fund.
Those taking the “value” approach, which looks to buy cheap stocks in the hope they rebound, could have to make a lot of changes. These stocks can either surge, making large gains for investors, or can fall significantly. Investors who own these stocks may change their holdings more often if the share prices move dramatically.
However, those that invest for “growth” – companies that will keep increasing their earnings regardless of the market environment – are likely to make fewer changes, as these stocks tend to be for “buy and hold” investors.
Others may choose to invest for “momentum”. This strategy involves buying a company when its share price is on the rise and selling before investor enthusiasm wavers.
Sam Dickens, of IG, said: “There is no golden rule on how often investors should trade.”
He suggested that those unwilling to do constant research and dedicate a large amount of time to the competition take a “core-satellite” approach.
“They should maintain a sensible core portfolio which requires little attention over time, but could look to make strategic changes to satellite positions as and when opportunities arise,” he said.