Dont Let Your Investments Control You
Keywords: investing, stocks, personal wealth, investments
Which of your investments worried you most during the recent market correction? If it was one of your smaller holdings, you’re not alone.
We all have only so much time and so many brain cells to devote to investing. If you’re focusing yours on a tiny portion of your investments, the majority of your net worth is going unwatched.
Many investors I speak with are focused on only one or two of their investments or, worse, are fixated on the one they sold which has since gone up in price. Have you ever taken a flier? Bought a few shares of something on a tip?
Stop and ask yourself: suppose this purchase doubles or triples, what impact will it have on your net worth? It will be insignificant. And, any change to your net worth will be dwarfed by the movement of your primary investments.
Let’s put some numbers to this. If you have a stock or mutual fund which is 1% of your total portfolio and it doubles in value, it’s now only 2% of your total holdings. Your net worth has only increased by 1%. And, let’s face it, despite what we think, it’s unlikely that many (or even a few) of our investments will double over the short term.
The key to building a strong investment portfolio is to set your goals and diversify, but not have so many investments you can’t follow and to avoid investments which are too small to be meaningful. Here are some rules of thumb: no stock or bond should be less than 2% of your portfolio.
No mutual fund should be less than 5%. If you’re uncomfortable holding that much of a particular stock or fund, the investment is too risky for you and you shouldn’t own any of it. Think about the 2% and 5% guidelines for a minute.
If you own only stocks, that would be a 50 stock portfolio, a lot of stocks for anyone to follow. It would be 20 mutual funds. In both cases, more securities than you need to achieve diversification. So the above percentages are only minimums.
The maximum holding for a stock should be 5%, that’s 5% of your net worth tied to the fortunes of one company (remember Enron, if you’re wondering why).
For mutual funds, the bigger and safer the fund’s investment focus, the more you can invest in it. Bigger and safer means, for example, Big Cap stocks for both domestic and foreign funds, investment grade bonds and US Treasuries. To be conservative, you should put no more that 10% of your next worth into any one fund.
This brings us to index funds. If it’s a fund mirroring a big index, i.e., the S&P 500, the Lehman bond index, the Morgan Stanley Japanese stock index, you can invest more than 10% in a single fund. If it is a smaller index, i.e., the technology sector, the 5% rule applies.
Diversify, but don’t have so many investments that you can’t follow them all. Avoid investments which are so small they won’t make a difference. Focus on the big picture; don’t let the tail wag the dog.
Bill Byrnes is a co-founder of MUTUALdecision (www.mutualdecision.com) A former investment banker and finance professor, he has been CEO, chairman and served on the boards of a number of public companies. Bill is a CFA with over 30 years investment experience.
Previous Articles Highlighter:
Where To Find The Top Homes In Texas (1)
Best of all, buy your new home now, and Sienna Plantation will even pay for the $3,000 initiation cost! With everything that it has to offer, for all shapes and sizes of buyers, this area not only brings luxury to Houston - it truly is one of the ideal places when it comes to top homes for sale in Texas full stop.
Houston Texas Has Retained It's Market Value (2)
This is largely due to the state of the property market, and the fact that you can buy large, high quality homes in Houston for reasonable prices. These ratings reflect positively on the property market, and are a good indication of future stability and growth.
Best Real Estate Financing Tips To Save You Money (3)
They often will shave off a point or more on your home loan if you buy from their real estate company and save you some money there. Make sure you call around to several lenders or mortgage brokers before you apply for a home loan to get an idea what points and other fees they would be charging you.
Tricks For Finding The Top Homes For Sale In Texas (4)
Trick #5: Be clear as to what you want and do not want in a home. Lastly, top homes for sale in Texas come in a variety of shapes and sizes.
When None Of The Top Homes For Sale In Texas Fit Your Need... (5)
He or she can help you design a home in your price range. Remember, these builders have worked on some of the top homes for sale in Texas. Trust their judgment and your instinct when it comes to planning and building your house, and you should find that the end result is the home of your dreams.
New Homes Increase Standard Of Living (6)
After all, we all choose our communities based on what we can afford and how safe it is. It is an unfortunate fact of life that those who can afford to live in low crime areas do so.
Get Out Of Credit Card Debt - 5 Helpful Hints (7)
Many individuals and families focus on getting more "pay" or having more "income" rather than reducing costs and cutting out unnecessary expenditures in the first place. In many cases, this additional money only leads to more debt.
How To Avoid VA Home Foreclosure (8)
This can be done through a real estate agent or by the owner himself. Selling the home will allow the owner to cancel out the debt and begin again with his/her credit standing in tact.
Reasons For Selling Endowment Policies (9)
Selling your endowment policy can work to your advantage and come as a great benefit if you manage to make a profit on what you bought the policy for. It's a great way to raise money and can be put towards paying off your mortgage and will no doubt take a weight off your mind.
What Is An Adjustable Rate Mortgage? (10)
Adjustable mortgages do come with caps. These caps limit the amount by which ARM rates and payments can adjust. This may not be true if you are in sub-prime loan position.
Trust The Internet To Get You The Best Car Loan (11)
With so many offers easily available for online car loans, car loans interest becomes the prime consideration in selecting a car loan. People who have declared bankruptcy can look for a bankruptcy car loan.
Leverage, Or How To Make Money In Your Sleep (12)
Then, go take a nap and dream of all those dollars flowing into your bank account! Ed Lathrop is a successful Real Estate investor. He has developed EzCalculator, a Mortgage, Student Loan, Credit Card and ROI Calculator.
Filing Bankruptcy: Relieving The Pressure Of Debt (13)
Keywords: filing bankruptcy, bankruptcy alternatives, bankruptcy Because of some reasons or others, if you have caught yourself in the heavy piles of various kinds of debts, you might be thinking about filing bankruptcy to relieve the pressure of debt.
Student Loan Consolidation Program : Your Road To Financial Success (14)
Finally, you and your lender sit together and find out the most convenient repayment plan for you. In this plan, the interest rate is much lower than the collective interest rate you were paying on your outstanding dues to your previous lenders.
The Inside-Out Of College Loans (15)
First of all, realize that you can get a college loan. Sounds obvious, right? Not really! I have heard of many candidates who hesitate applying for a college loan as they have a poor credit history.
Free Credit Card Debt Consolidation : A Successful Technique For Eliminating Card Debt (16)
As the rate of interest is also lower, you get an extended period for the repayment so the monthly installment becomes significantly lower. When you choose any company that offers online debt consolidation facility then you do not have to move out of your home to consolidate your debt.
Repair Your Past Mistakes : Go For Credit Card Debt Services (17)
They provide you with all professional help related to consolidation. They will work out your paying capacities. Besides, search for suitable debt companies, which will pay off all your high interest credit cards.
What Makes A 0% APR Credit Card Offer Stand Out For You? (18)
It's not always rational, but sometimes you just flat out prefer one company over another. You may have preferred their service in the past, or just trust the brand.
Interest Free Debt Consolidation : Scheme Devised To Help The Unfortunate Borrower (19)
He or she can help you in many ways like filling out the questionnaire and presenting the data to the debt consolidation company. Select A Company Of Repute However, you should give utmost priority to the reputation of the company while choosing one to deal with.
Get Help From Debt Consolidation Company To Organize Your Debts (20)
The best consolidation program is the one that can be custom-made for your specific requirements. Then, it will offer you true respite. Caution For Going Online Besides looking for these qualities in a debt consolidation company, extra care is required, if you are selecting an online organization.
Newer Articles Highlighter:
New Homes Build On Luxury And Community (1)
Sugar Land offers luxury living in a close-knit community, where diversity is valued and young people are vital, where the amenities that most would love but can't afford are a part of everyday life and where family and community are an important part of life.
Sugar Land Luxury Home Builders (2)
Sugar Land's numerous luxury home builders can easily work within every customer's budget and wish list to provide the perfect dream home! When you bring together outstanding home builders, exemplary Fort Bend schools, century-old trees and tons of recreational amenities, you've got Sienna Plantation.
The Blue Ridge Mountains Is A Natural Wonderland (3)
There is a local school of rock climbing in Hendersonville. This school offers guide service to many locations near Hendersonville including Looking Glass, Cedar Rock, Whitesides, and Chimney Rock.
Best Schools In Houston (4)
Families may want to investigate private education opportunities in the area they are considering living as well as perhaps home schooling networks. You will be able to compare schools with one another and this should help you narrow down your choices.
Experience Western North Carolina Real Estate (5)
You can be close to the adventures in the local forests and parks with Hendersonville NC real estate. There are so many trails to hike in the local parks, including Jackson, Westveldt River, Etowah, Edneyville, Dana, and East Flat Rock Parks.
How To Apply For A Bank Loan (6)
Its no real secret that in order to get a business loan from most banks, you have to be able to show that you really do not need their loan.
Trends In Chinese Banking Sector Reforms (7)
Keywords: Zetland, finance, offshore investors, fiduciary services, investment management, corporate advisory, tax The Chinese Government started reforming the banking sector significantly in 2005 by letting Shanghai based Bank of Communications ("BCom") list on the Hong Kong Stock Exchange.
US Export Promotion Targets PRC (8)
In 2007 the U.S. intends to continue to focus on China's second-tier cities and on several high-growth sectors, including agricultural products, aviation equipment, safety and security, healthcare, construction and pollution control and energy efficiency.
Quick And Easy Guide To Cheap Car Insurance Quotes (9)
Now if you haven't had any accidents that were your fault and you're a good driver, consider getting a higher deductible so you would pay out a larger sum of money in the event you have an accident that is your fault but still save a lot on your insurance premium.
How To Find Your Best Mortgage Deal Online (10)
To avoid paying a premium on mortgage advice, you can find websites that will allow you to search all available mortgage advisors in your area and compare charges. Different types of Mortgage Advisor An independent mortgage advisor is able to offer a "whole of market search" in your area.
How To Find The Right Home In Any Real Estate Market (11)
Of course, when it comes to finding the right residential home site, you must pay attention to the proximity of the property to necessary community amenities and services including schools, fire stations, shopping centers, commercial districts and the like.
What Is An Unsecured Loan? (12)
Because there is no collateral involved in an unsecured loan the lending agency will use your personal credit history as the basis for approving or denying the loan. In almost all cases, this information comes to them through the data that you supply on the application form and through the major credit reporting agencies.
Tips For Choosing A Gas Credit Card (13)
You'll get credited for them all. There is a catch, however - for cards with 5% rebates, you may find that there is a cap on the amount of gasoline spending that the card can pay out for.
The Top 3 Pitfalls Of Refinancing Your House To Pay Off Your Credit Cards (14)
If you know you can successfully pay for your refinanced home, and that you can save money doing it, go for it. Court helps people to learn about credit card offers.
What You Need To Know Before Committing To Student Loans (15)
These types of programs can help you stay in good standing. This will allow you to be eligible for future student loans as well if you decide to return to school.
Should You Prefer Your Home Equity Line Of Credit Or Your Credit Card? (16)
Transfer to a credit card. Though transferring to a credit card may not always be the best solution, it has helped several people save money on their home loan.
Eliminate Debt? The Unforgiving Truth Behind Paying Off Your Personal Debt! (17)
Credit Cards for Everyday Purchases: If you are using your credit cards for buying gas or food then again you know that cash is being spent on something that it shouldn't be.
How To Raise The Limits On Your Credit Cards (18)
If your credit score is high to begin with, this may not be too severe of a blow, but if you have a high score, why not keep it that way?
What If I Cannot Make A Loan Payment? (19)
Whenever possible, you want to maintain a clean credit record even if that means making substantial sacrifices at home. Getting this payment caught up as quickly as possible should be your main concern.
Stay At Home Moms - Dare Yourself To Save Money (20)
Look at your memberships. Do you really use your gym membership, or has it just been sitting there sucking up money? On the other hand, zoo and other memberships can be a great way to get affordable and fun time out for the family.