The core principle at the heart of this investment strategy
There are steps you can take to ensure you don’t lose everything if the market takes a turn for the worse.
For instance, it’s wise to run trailing stop losses and spread your investments through position sizing with your individual stock picks.
But at the very heart of this investment strategy
is asset allocation, Brian Hunt and Ben Morris in The Crux
Asset allocation is how you spread your investments over different assets. For instance, you hold a set percentage in stocks, property, gold, cash, etc.
The whole point of asset allocation is to avoid having too much exposure in one type of asset. Instead you spread your wealth. This reduces your risks as different assets react in different ways to different things.
Asset allocation is a very personal thing. It comes down to a variety of factors like your financial goals, your financial obligations and your tolerance to risk.
An example of an asset allocation plan
As a guideline, here’s an asset allocation plan that can work for many people…
Hold 20% to 30% of your portfolio in bonds
Buying bonds means you’re lending money to the government or companies. They give you a stream of income in the form of interest payments and diversify your portfolio out of stocks.
Put 5% to 10% of your portfolio into precious metals
Precious metals include gold, platinum, silver and palladium. In times of financial crisis, these metals tend to perform very well.
The best way to gain exposure to precious metals is through owning the physical metal.
Keep 10% to 20% of your wealth in cash
Holding cash means you can take advantage of any stock market bargains. And it gives you flexibility.
Hold 20% to 30% in property
This includes owning a rental property or buying shares in real estate investment trusts (REITs) and other property-listed companies.
Hold 20% to 30% in stocks
Ensure you hold a diversified portfolio of stocks. You want to hold different stocks across a number of different sectors. This include large-caps, dividend payers and penny stocks.
If you don’t want to pick individual stocks, opt for a fund that mirrors the performance of the overall index.
To add more diversification, you could look to alternative investments
So there you have it. An investment strategy to reduce your stress levels.
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