There are few men who can speak with confidence about their
investment portfolios. Besides, out of thousands of stocks which ones are the
winners? Thats not an easy question to answer as many investors have discovered.
Yes you could just follow the popular stocks but thats not where the real money
is.
You could just copy your friends portfolios but who is to say they know
what theyre doing? Here is an overview of how your portfolio should be
structured. Keep in mind that everyone has a different risk tolerance and so
you can make adjustments where necessary. We will speak in generic terms here
and give percentile ranges instead of exact recommendations. This way you can
make your own decision according to your particular situation.
To start with, if you know nothing about investing then you need to take the
time to learn first. That or just jump into some mutual funds and have someone
manage the allocations for you. There is no reason to take unnecessary risks at
this point. It is only an unnecessary risk if you lack the proper knowledge.
Large Caps. Now there are many investing consultant types who will tell you to
put a large percentage in large cap stocks. I say, unless you are big on
dividends, which can be a nice constancy, you should only put a small portion
of your portfolio in large caps. The reason I recommend this is because these
stocks have already seen their glory days. They are wonderful companies but the
potential for them to double your money is quite small. So I would recommend a
10% to 20% allocation here depending on your long term goals. Looking for slow
less risky growth? Then lean on the latter end of that percentile
recommendation.
Mid Caps. I believe that mid cap stocks in reality should take the place of the
typical large cap recommendations. Why? Because these companies have
experienced growth but still have a decent amount of potential to bring great
profits. Safe with great potential, sounds like a winner to me. So Im going to
recommend a 20% to 30% allocation here depending on your risk tolerance and
long term goals.
Small Caps. These companies have huge potential if you follow trustworthy
recommendations and stick with them. We are not talking about short holds here.
We are talking about finding a super star small cap company and sticking with
it until it becomes a large cap stock. I would recommend a 30% to 40%
allocation here.
Micro Caps. This is a personal favorite but I am willing to take the risks.
Micro caps are often called penny stocks and dont trade on the normal stock
exchanges. Keep in mind that penny stocks are only for those with a big
tolerance for risk. If you are uncomfortable with losing money then you should
steer clear of this investment all together and use this allocation in other
parts of your portfolio. There is a big risk of losing money but a huge
potential for big gains not found else where. I would recommend a 10% to 25%
allocation depending on your risk tolerance and goals.
