How Much Should I Invest in a Single Stock?

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How Much Should I Invest in a Single Stock?

Hotep G&G Readers,

By far ... this is the most asked question I get from clients referencing their investment portfolio.  So, I thought I'd address it in this weeks newsletter.  How much money should you put into one stock or investment?

Should you buy 100 shares or $5,000 worth of shares? Should you invest 5% of your portfolio or 5% of your net worth?  

These are incredibly important questions… And your answers could mean the difference between making real money from your investments and losing it all.  I'm not joking here. If you don't have a system for determining how much money to put into one investment, you're just shooting from the hip.

That's unacceptable – especially when the answer is so simple.  So… what's the RIGHT amount of money to put into any one investment?

If you're not sure, you are not alone. I'd bet 99% of investors don't have a system for determining how much is too much to invest in one idea, or how much is not enough. It's stunning to me how willing people are to risk their life savings like this – especially when there are simple answers.  

It's not how much you have invested, but how much you have at risk.
Let me explain…  

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Let's say you have a $100,000 portfolio. You're willing to RISK a loss of 1% of your portfolio – $1,000 – on a single trade and you also use my recommended 25% trailing stop as per the G&G Investment Subscriber (GGIS) portfolio.

According to these parameters, you could invest $4,000 in that trade. If the trade goes down 25%, you've lost $1,000 – or 1% of your portfolio.

That's the basics. You can push all these numbers around, of course. You may say, "Gee, I really don't want to lose 1% of my portfolio on any one idea." You could do a couple things…

You could invest less money… If you invest just $2,000 (0.5% of a $100,000 portfolio), you're only risking $500 (with a 25% trailing stop) if the trade goes against you.

You could also tighten your trailing stop… If you are only willing to risk 0.5% of your portfolio on any one position, you could tighten your trailing stop to, say, 10%. Since you're OK risking $500, you could invest $5,000 in that trade.

I know it's a lot of numbers. The important point to understand is this:   It's not how much you have invested, but how much you have at risk.

So the question is how much money should you have "at risk"? And what is the "right" trailing stop? If you aren't sure, contact G&G Associates and setup a financial consultation so we can make sure you have your portfolio properly leveraged.

As always…feel free to pass this information on to anyone you think is interested in increasing their tax & financial IQ. If you need a one-on-one consultation to learn how to implement these investments or any other tax or financial strategy mentioned in these newsletters, feel free to contact my office to setup an appointment.

Good Investing!

Ankh Uja Snb (Life, Health & Strength)
Asar Maa Ra Gray
Tax & Financial Consultant 

G&G Associates
757-271-6068 office
866-361-3872 toll free fax
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Philosophers aren’t psychics … they are good historians.  Knowing your history will allow you to interpret and understand the present … Knowing how to interpret the present, will allow you to predict the future.”

            Dr. Kaba Kamene
  
 

LEGAL NOTICE: This work is based on what I’ve learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here.  It’s your money and your responsibility.  Nothing herein should be considered personalized investment advice.