How Many Positions Should You Have?

As a follow up to yesterday’s post “When Should You Take Your Profits?” reader Dave had this question:

You have covered well the decision-making that goes in profit-taking and what I call “loss-reduction”.

What I am uncertain about is the number of positions one should hold at one time? Does it differ if you have a mixture of ETFs and Mutual Funds from an all-ETF or all-Mutual Fund?

No, it does not. Usually, if a beginning investor has less than $20k in his portfolio, maybe 1-3 positions in domestic and widely diversified international funds, when the respective Buy signals are in effect, is all that is needed to diversify. I don’t recommend sector exposure for a small portfolio.

I usually designate 8 to 10% of portfolio value to any one area. Let’s say we have a buy from our domestic TTI (Trend Tracking Index). I would initially invest 1/3 of portfolio value (allocated to 3 or 4 mutual funds/ETFs).

If the international TTI subsequently signals a Buy, I would to the same thing there, which leaves me with 1/3 in money market. If some sector or country funds are showing strong upward momentum, I would again designate 8 or 10% to any one area.

If sectors and country funds do not offer any opportunities, or volatility is too high, I will then allocate more into my existing holdings, provided they have gained some 5% in value. In other words, I will stay with the long-term trend until it ends and my sell stops are triggered.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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