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Stock Investing Portfolio Allocation Truths

Investors often have the most trouble with proper stock investing portfolio allocation. This is where they decide how much of their portfolio to put in each stock investment. This is one of, if not the most important decision an investor can make. It often determines whether or not an investor or trader will profit or lose all their investment capital. Many investors get hyped up about a particular stock and believe it will be an easy winner. They allocate far more than they should to the investment and end up taking a loss that cripples their account. Below are the truths and must do’s for stock investing portfolio allocation.

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Act Like A Robot

Investors need to be robotic in their investment decisions. Never let the hype from the media or analysts sway you on how much to invest in a stock. Before you invest in a portfolio, always decide how much you will allocate, no matter the stock stock. It might be your favorite company but it should never carry an overweight in your portfolio. Some of our favorite stocks can become losing investments. Write down these investment maximums if you must, do whatever it is to remain true to them.

Investment Differently For Small Caps, Mid Caps and Large Caps

The smaller the company, the riskier the investment. There is a reason why small cap stocks are small. They are risky and have yet to breakout with a big product, technology or drug success. This means the weighting in your portfolio should reflect that risk. I am a big fan of allocation a certain percentage to small cap stocks, slightly more to mid caps stocks, and more to large caps stocks. This is to mitigate risk. For example, large cap stocks earn profits each quarter and often give a dividend. They have an established business. Therefore an investment in them will be less risky than a small cap that has no profits, pays no dividend and has no major product yet.

My Stock Investing Portfolio Allocation

When it comes to my personal portfolio, I invest a standard 3% in a small cap, 5% in a mid cap stock and a maximum of 10% in a large cap stock. This keeps my risk in check and my portfolio can have multiple positions of each.