Monday March 13, 2017.
Hello and welcome to this special report from KeyLevels.com.
Traders use stop loss orders to control risk, while investors use allocation and diversification.
Here is some important information you need to know if you are an investor.
Obviously owning just 1 stock in your portfolio is high risk.
By purchasing a 2nd your stock specific risk falls by 46%.
A 4 stock portfolio reduces your stock specific risk by 72%.
An 8 stock portfolio reduces your stock specific risk by 81%.
A 16 stock portfolio reduces your stock specific risk by 93%.
A 32 stock portfolio reduces your stock specific risk by 96%.
With 500 stocks your stock specific risk is zero, because you own every stock in the index.
That is, assuming your benchmark is the S&P 500 index.
From this data it can be concluded that roughly 16 to 20 stocks will be ideal for most.
That does not mean you have to hold 16 to 20 stocks, but it does suggest you should invest no more than 5% to 6% in each one.
Until next time, for Key Levels, I’m Paul Nojin.
Risk Warning – Futures, options, forex, CFD and ETF trading can offer large potential rewards, but can also involve large potential risk. You must be aware of the risks and be willing to accept them in order to trade in these markets. Do not trade with money you cannot afford to lose. This report is general in nature and is not a solicitation to buy or sell. No representation is being made about future results. Proceed at your own risk, and exercise caution at all times. Whenever you have an open position you must also have an active stop loss order to cut losses fast, to protect yourself if the trade fails. It is imperative to minimize risk through the use of stop loss orders.