Best Way to Determine How Much Of Your Money Should Be In Stocks
Being a novice trader, you may find difficulty in determining how much of your money should be in stocks, what type of stocks you should look for, or what common mistakes you must avoid. Following these tips, you become ready to buy their first stock.
Check out your portfolio in stocks
However, there is no set-in-stone rule, yet generally speaking, as you get older and closer to retirement, you should reduce your exposure to stocks in order to preserve your capital. You can take your age and subtract it from 110 to find the percentage of your portfolio that should be invested in stocks, and adjust this up or down based on your particular appetite for risk.
Individual stocks and Index funds
In an index fund you are allowed to invest in many stocks by purchasing one investment. Consider an example, an index fund gives you exposure to all 500 stocks in that index. One of the best tools to diversify your portfolio and reduce your risk is index funds. It is believed that if your money is spread across hundreds of stocks and one crashes, the impact on your overall portfolio is minimal.
Keep track of number of stocks you need to buy
When you want to buy only individual stocks then you must buy at least 15 different stocks across several different industries in order to properly diversify your portfolio. However, this may not be practical when you are just starting out. You may also invest the bulk of your money in index funds, and buy one or two stocks with the rest, rather than buying lots of individual stocks. It takes most of the guesswork out of investing, while still allowing you to get some experience with evaluating stocks.