Additional Investment Considerations

When you establish your portfolio, you may also consider buying the Weak Buys for additional diversification.

Spreading your purchases out will tend to reduce market risk, similar to dollar-cost averaging with mutual funds.

More stocks in your portfolio will tend to reduce volatility. But having too many stocks that have hit their target prices or exceeded their previous highs will tend to diminish returns. It also means more time spent monitoring your holdings.

You should have an appropriate number of stocks in your portfolio. Having too few stocks will increase risk and volatility. Having too many will tend to diminish returns as it is difficult to find a lot of true bargains in the market at a given time. You should have no fewer than 10 stocks and no more than 30. Fifteen to twenty is appropriate for many individual investors.

Consider reducing stocks when, through price increases, they cross the demarcation lines between ratings. This will generate additional cash for new purchases. On the downside, it means extra work, possible tax consequences and higher commission costs.

Always have a percentage of your portfolio in cash. From 5% to 15% is a reasonable allocation. If, however, you accumulate more than 15% in cash (from a lot of stocks hitting their target prices) it’s better to stay in cash than buy stock in poor companies or buy shares that are expensive.

Selling a stock less than one year after you buy it could affect the percentage of tax you pay on the profit.

This website is about how to invest in common stocks for capital gains. Financial advisors also recommend that a percentage of your investment portfolio be allocated to bonds and cash. Five to 15 years before retirement, you should consider discontinuing new purchases of stock. Sell the remaining stocks in your portfolio as they hit their target prices and allocate the proceeds to bonds and cash.