How much of your networth would you invest in single stock?

[DPolo]

i have less then 6% in a single equity and more then 15% in each sector. I only have 4 sectors in my portfolio. I am about $3,500 down for the year and have $3,500 cash to invest this week.

I am down on RAD like 1k and don't know what to do about it.
2k losses in Oil, these are leveraged ETFs that move with the price of Oil as commodity.

[hawaiishrimp]

My general rule is: Never invest more than 5% of your total portfolio in any single stock. I am following this rule myself.

[mitchmiller9]

If you're a buy-and-hold-indefinitely (auto-pilot) investor, most investment books recommend a stock portfolio of no less than 25 companies, in addition to other investments. That translates to less than four percent. It should be spread evenly across sectors.

I'm a buy-and-sell investor (not a technical trader), so I don't go beyond what I can afford to lose and buy individual stocks primarily in one sector only. I've been as high as 50% in a stock where I was building a position with the aim of selling all of it at the conclusion of specific events (which I did).

[Can't sleep]

I have 55% of my money in VTI (Total Stock Market) and 45% in BND (Total Bond Market). Do these index funds count as a stock?

[mathjak107]

no , they count as thousands of stocks .

a fund is not just one stock

[rjm1cc]

Originally Posted by Can't sleep

I have 55% of my money in VTI (Total Stock Market) and 45% in BND (Total Bond Market). Do these index funds count as a stock?

I would review the bond fund with the current low interest rates. Seems very very risky.

[Jobster]

Most text books say that any diversification benefits would be achieved by investing in 10-12 stocks, as long as the stocks are unrelated to each other...or as unrelated as possible.

The easiest way to do this is to beta-weight your portfolio.

[Jobster]

Originally Posted by Can't sleep

I have 55% of my money in VTI (Total Stock Market) and 45% in BND (Total Bond Market). Do these index funds count as a stock?

No, but how did you arrive at that estimation? You could attempt to figure out what your efficient portfolio is in consideration of your return vs your risk.

Once you figure that out, you could consider adjusting your risk by investing the rest of your proceeds into a risk free fund, depending on your risk sensitivity.

Assuming your VTI fund is comprised of an index of stocks that more or less reflect the S&P 500, the beta should be 1. Since the market doesn't reward idiosyncratic risk, your volatility rate is the same as the market's rate.

After looking up BND, it appears that it's an investment in investment grade bonds. That seems like it's safe. I ran an analysis earlier with two similar funds, the Sharpe ratio was tangent when the fund was 80% bonds and 20% stocks. You would keep that ratio and adjust according to your risk sensitivity by investing in a risk free asset. If you prefer an ETF, an example would be IEF, which has a YTD return of 2.65%.

Unfortunately, the mean return with this strategy was only 5.5%, assuming you invested 100% of your portfolio into the Bond Fund and the Stock Fund; however, it was the most efficient utilization of your risk vs reward.

In this volatile environment, it may be safer for you to adjust your portfolio to reflect this ratio. Nobody can predict the future, and the market is not necessarily correlated with the underlying economy, but it does seem like growth is not progressing as fast as I would have assumed it would, given low oil prices.

If oil prices don't recover soon, it could set off a series of bankruptcies that could have a ripple effect in the high yield bond market, potentially carrying over to stocks. If oil prices do recover, they may recover faster than anticipated, which also may cause investors to panic and sell their positions.

Additionally, while high frequency traders provide liquidity, I doubt those machines will be working in an environment where there is fear of a significant drawdown. This means that the bid-ask spreads will widen even more, exacerbating the situation.

Regardless of what you do, you should probably attempt to figure out what your efficient portfolio is, but if my analysis, (which had a very similar set up as yours) is reflective of your situation, consider 80% bonds, 20% stocks for the proponent of your portfolio that you invest in those two assets.

So if you dedicate 90% of your portfolio to that combination, that ratio should always be 80% to 20%, with the rest invested in a risk free asset to mitigate your risk.