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An Investment Management Company
Tutorial - Portfolio Management
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How many stocks should I have in my portfolio? Is more better? If you are more
than 10 years away from reaching your Big Number, I recommend a concentrated
portfolio (15 to 20 stocks). Why a concentrated portfolio? Well, statistically, if you have
more than 20 stocks in your portfolio it will become increasingly difficult to outperform
the market. So you have a choice to make. If you will be satisfied with making a return
equal to the stock market as a whole, just buy an indexed money market fund (e.g.,
S&P 500 Index). However, if you believe you can do better than the market using the
strategy I have outlined you should limit your portfolio to under 20 stocks.
Of course, by limiting your portfolio to 15 to 20 stocks you not only increase your
potential to outperform the market, but you also increase your potential to
under-perform the market. But by using the strategies we have discussed you will
reduce this down-side risk by 1) buying companies with Economic Moats, and 2)
buying companies at a significant discount to their Intrinsic Values.
If, on the other hand, you are within 10 years of reaching your Big Number, you
should increase the number of your holdings to decrease the risk that any one stock
presents to your portfolio.
What mix of investments should I have in my portfolio? Well, it depends upon how close
you are to your Big Number. If you're more than 10 years from reaching your Big
Number then I recommend investing 100% in stocks. However, if you're within 5 or 10
years of reaching your Big Number, you'll need to modify your portfolio to include an
increasing proportion of bonds and high yield stocks. Why? As you get close to your
Big Number you will begin to make plans for your retirement -- plans that rely upon
income from this portfolio. By moving to income generating investments, you are
making your transition to retirement. And, although these investments will not
appreciate as quickly, their market prices will remain more stable so you can be more
certain that you will reach your Big Number on schedule, even if the stock market
takes a dive in the last few years before you reach retirement.
Now that we've covered the basics of investing in a perfect world, we're ready to tackle
an issue that crops up from time to time. That is the nasty creature called Inflation.
Click Here and we'll deal with Inflation.
than 10 years away from reaching your Big Number, I recommend a concentrated
portfolio (15 to 20 stocks). Why a concentrated portfolio? Well, statistically, if you have
more than 20 stocks in your portfolio it will become increasingly difficult to outperform
the market. So you have a choice to make. If you will be satisfied with making a return
equal to the stock market as a whole, just buy an indexed money market fund (e.g.,
S&P 500 Index). However, if you believe you can do better than the market using the
strategy I have outlined you should limit your portfolio to under 20 stocks.
Of course, by limiting your portfolio to 15 to 20 stocks you not only increase your
potential to outperform the market, but you also increase your potential to
under-perform the market. But by using the strategies we have discussed you will
reduce this down-side risk by 1) buying companies with Economic Moats, and 2)
buying companies at a significant discount to their Intrinsic Values.
If, on the other hand, you are within 10 years of reaching your Big Number, you
should increase the number of your holdings to decrease the risk that any one stock
presents to your portfolio.
What mix of investments should I have in my portfolio? Well, it depends upon how close
you are to your Big Number. If you're more than 10 years from reaching your Big
Number then I recommend investing 100% in stocks. However, if you're within 5 or 10
years of reaching your Big Number, you'll need to modify your portfolio to include an
increasing proportion of bonds and high yield stocks. Why? As you get close to your
Big Number you will begin to make plans for your retirement -- plans that rely upon
income from this portfolio. By moving to income generating investments, you are
making your transition to retirement. And, although these investments will not
appreciate as quickly, their market prices will remain more stable so you can be more
certain that you will reach your Big Number on schedule, even if the stock market
takes a dive in the last few years before you reach retirement.
Now that we've covered the basics of investing in a perfect world, we're ready to tackle
an issue that crops up from time to time. That is the nasty creature called Inflation.
Click Here and we'll deal with Inflation.
| Investing Wisely |
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| The advice contained within this website is general in nature, only for the use of FI Investments clients, and should not be relied upon without first consulting with FI Investments. |