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.
Comments 4
How should we view our “Portfolio” when we have several accounts (ie 401K, IRA, Broker, etc)? Should all be considered one portfolio or seperate? Would a single 8% position equal 8% of the total of all accounts or would it be for a single account? This question is related to the total number of positions and position size.
Great question! Let me address this in a separate post within a couple of days.
Ulli…
Ulli,
Couple comments. In my own investing, it seems I may trade/invest in a breakout stk/etf and many times after a short gain I get stopped out on a small pullback only to see the security to have a very nice breakout. Do yu care to share yur rules for selecting breakouts.
On another note, yu been kind enuf to share mcuh of yur strategy in recent blogs to answers to comments. Is it possible to consolidate most of then and post somewhere on yur web page. Yu mentioned in depth go to the risk section. I cud not find that. If consolidated then new readers to yur site cud get p to speed quickly. – tks
I’ll keep your suggestions in mind. A good way to proceed is by reading my Investment Policy Statement, which should clarify a lot of questions. You can find it at: http://www.successful-investment.com/InvPolicyStatement.pdf.
Ulli…