What percentage of my portfolio should be in individual stocks?
If you are comfortable with the risk etc, then the main thing to worry about is diversity.  For some folks, picking stocks is beyond them, or they have no interest in it.  But if it's working for you, and you want to keep doing it, more power to you. If you are comfortable with the risk, you could just as well have ALL your equity position in individual stocks.  I would offer only two pieces of advice in that respect. 1) no more than 4% of your total in any one stock.  That's a good way to force diversity (provided the stocks are not clustered in a very few sectors like say 'financials'), and make yourself take some of the 'winnings off the table' if a stock has done well for you. 2) Pay Strong attention to Taxes! You can't predict most things, but you CAN predict what you'll have to pay in taxes, it's one of the few known quantities.  Be smart and trade so you pay as little in taxes as possible  2A)If you live someplace where taxes on Long term gains are lower than short term (like the USA) then try really really hard to hold 'winners' till they are long term.  Even if the price falls a little, you might be up in the net compared to paying out an extra 10% or more in taxes on your gains.  Obviously there's a balancing act there between when you feel something is 'done' and the time till it's long term.. but if you've held something for 11 months, or 11 months and 2 weeks, odds are you'd be better off to hold till the one year point and then sell it.   2B) Capture Losses when you have them by selling and buying a similar stock for a month or something.  (beware the wash sale rule) to use to offset gains. How much should a rational investor have in individual stocks? Probably none. An additional dollar invested in a ETF or low cost index fund comprised of many stocks will be far less risky than a specific stock. And you'd need a lot more capital to make buying, voting, and selling in individual stocks as if you were running your own personal index fund worthwhile. I think in index funds use weightings to  make it easier to track the index without constantly trading. So my advice here is to allocate based not on some financial principal but just loss aversion. Don't gamble with more than you can afford to lose. Figure out how much of that 320k you need. It doesn't sound like you can actually afford to lose it all. So I'd say 5 percent and make sure that's funded from other equity holdings or you'll end up overweight in stocks. "I find the question interesting, but it's beyond an intelligent answer.  Say what you will about Jim Cramer, his advice to spend ""an hour per month on each stock"" you own appears good to me. But it also limits the number of stocks you can own. Given that most of us have day jobs in other fields, you need to decide how much time and education you can put in. That said, there's a certain pleasure in picking stocks, buying a company that's out of favor, but your instinct tells you otherwise. For us, individual stocks are about 10% of total portfolio. The rest is indexed. The amount that ""should be"" in individual stocks? None. One can invest in low cost funds, never own shares of individual stocks, and do quite well." I think it depends entirely on your risk tolerance. Putting money in individual stocks obviously increases your risk and potentially increases your reward. Personally (as a fairly conservative investor) I'd only invest in individual stocks if I could afford to lose the entire investment (maybe I'd end up buying Enron or Nortel). If you enjoy envesting and feel 10% is an acceptable loss I think you have your answer I'm in a remarkably similar situation as yourself.  I keep roughly 80% of my portfolio in low-cost ETFs (16% bond, 16% commodities, 48% stock), with about 20% in 6-8 individual stocks.  Individual stocks are often overlooked by investors.  The benefits of individual stock ownership are that you can avoid paying any holding or management fee (unlike ETFs and mutual funds). As long as you assess the fundamentals (P/B, P/E, PEG etc.) of the company you are buying, and don't over-trade, you can do quite well. I recommend semi-annual re-balancing among asset classes, and an individual stock check up.  I've found over the years that my individual stocks outperform the S&P500 the vast majority of the time, although it often accompanied by an increase in volatility.  Since you're limiting your stake to only 20%, the volatility is not really an issue.
The only sensible reason to invest in individual stocks is if you have reason to think that they will perform better than the market as a whole. How are you to come to that conclusion other than by doing in-depth research into the stock and the company behind it?   If you can't, or don't want to, reach that conclusion about particular stocks then you're better off putting your money into cheap index trackers. It depends on what stocks you invest in or whether you invest in an index, as all stocks are not created equally. If you prefer to invest directly into individual stocks and you choose ones that are financially health and trending upwards, you should be able to easily outperform any indexes and get your 30% return much quicker. But you always need to make sure that you have a stop loss placed on all of your stocks, because even the best performing companies can go through bad patches. The stop loss prevents you from losing all your capital if the share price suddenly starts going south and turns into a downtrend. "You probably want to think about pools of money separately if they have separate time horizons or are otherwise not interchangeable. A classic example is your emergency fund (which has a potentially-immediate time horizon) vs. your retirement savings. The emergency fund would be all in cash or very short-term bonds, and would not count in your retirement asset allocation. Since the emergency fund usually has a capped value (a certain amount of money you want to have for emergencies) rather than a percentage of net worth value, this especially makes sense; you have to treat the emergency fund separately or you'd have to keep changing your asset allocation percentages as your net worth rises (hopefully) with respect to the capped emergency amount. Similarly, say you are saving for a car in 3 years; you'd probably invest that money very conservatively. Also, it could not go in tax-deferred retirement accounts, and when you buy the car the account will go to zero. So probably worth treating this separately. On the other hand, say you have some savings in tax-deferred retirement accounts and some in taxable accounts, but in both cases you're expecting to use the money for retirement. In that case, you have the same time horizon and goals, and it can pay to think about the taxable and nontaxable accounts as a whole. In particular you can use ""asset location"" (put less-tax-efficient assets in tax-deferred accounts). In this case maybe you would end up with mostly bonds in the tax-deferred accounts and mostly equities in the taxable accounts, for tax reasons; the asset allocation would only make sense considering all the accounts, since the taxable account would be too equity-heavy and the tax-deferred one too bond-heavy. There can be practical reasons to treat each account separately, too, though. For example if your broker has a convenient automatic rebalancing tool on their website, it probably only works within an account. Treating each account by itself would let you use the automatic rebalancing feature on the website, while a more complicated asset location strategy where you rebalance across multiple accounts might be too hard and in practice you wouldn't get around to it. Getting around to rebalancing could be more important than tax-motivated asset location. You could also take a keep-it-simple attitude: as long as your asset allocation is pretty balanced (say 40% bonds) and includes a cash allocation that would cover emergencies, you could just put all your money in one big portfolio, and think of it as a whole. If you have an emergency, withdraw from the cash allocation and then rebuild it over time; if you have a major purchase, you could redeem some bonds and then rebuild the bond portion over time. (When I say ""over time"" I'm thinking you might start putting new contributions into the now-underallocated assets, or you might dollar-cost-average back into them by selling bits of the now-overallocated assets.) Anyway there's no absolute rule, it depends on what's simple enough to be manageable for you in practice, and what separate shorter-horizon investing goals you have in addition to retirement. You can always make things complex but remember that a simple plan that happens in real life is better than a complex plan you don't keep up with in practice (or a complex plan that takes away from activities you'd enjoy more)." The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share. This depends on a lot actually - with the overall being your goals and how much you like risk.   Question: What are your fees/commissions for selling? $8.95/trade will wipe out some gains on those trades. (.69% if all are sold with $8.95 commission - not including the commission payed when purchased that should be factored into the cost basis) Also, I would recommend doing commission free ETFs.  You can get the same affect as a mutual fund without the fees associated with paying someone to invest in ETFs and stocks. On another note: Your portfolio looks rather risky.  Although everyone has their own risk preference so this might be yours but if you are thinking about a mutual fund instead of individual stocks you probably are risk averse. I would suggest consulting with an adviser on how to set up for the future.  Financial advice is free flowing from your local barber, dentist, and of course StackExchange but I would look towards a professional. Disclaimer: These are my thoughts and opinions only ;) Feel free to add comments below. If you don't have a good knowledge of finance, maybe you should not put too much money in individual stocks. But if you really want to invest, you can just compare the rate of return of the most known stocks available to you (like the one from the S&P for the US). The rate of return is very simple to compute, it's 100*dividend/share price. For example a company with a current share price of 50.12 USD that delivered a dividend of 1.26 USD last year would have a rate of return of 100 * 1.26/50.12= 2.51% Now if you only invest in the most known stocks, since they are already covered by nearly all financial institutions and analysts: If you are looking for lower risk dividend companies, take a sample of companies and invest those with the lowest rates of return (but avoid extreme values). Of course since the stock prices are changing all the time, you have to compare them with a price taken at the same time (like the closing price of a specific day) and for the dividend, they can be on several basis (yearly, quartely, etc..) so you have to be sure to take the same basis. You can also find the P/E ratio which is the opposite indicator (= share price/dividend) so an higher P/E ratio means a lower risk. Most of the time you can find the P/E ratio or the rate of return already computed on specialized website or brokers. I have a similar plan and a similar number of accounts.   I think seeking a target asset allocation mix across all investment accounts is an excellent idea. I use excel to track where I am and then use it to adjust to get closer (but not exactly) to my target percentages. Until you have some larger balances, it may be prudent to use less categories or realize that you can't come exactly to your percentages, but can get close.   I also simplify by primarily investing in various index funds.  That means that in my portfolio, each category has 1 or 2 funds, not 10 or 20. "JoeTaxpayer's answer is dead on... but let me give my own two cents with a little bit of math. Otherwise, I personally find that people talking about diversified portfolios tends to be full of buzzwords.  Let's say that Buffett's investments are $10 million. He would like to earn ≥7% this year, or $700,000.  He can invest that money in coca-cola//underwear, which might return: Or he can invest in ""genius moves"" that will make headlines: (like buying huge stakes in Goldman Sachs), which might return: And he makes plays for the long haul based on the expected value of the investments. So if he splits it 50/50... ($5 million/ $5 million), then his expected value is 822,250: By diversifying, he does reduce the expected value of the portfolio... (He is not giving $10 M the chance to turn into $1.5 million or $2 million for him!). The expected value of that shock-and-awe portfolio with all $10 million invested in it is $1.2M. By taking less risk... for less reward... his expected return is lower. But his risk is lower too.  Scale this example back up into the $100 million or billion range that Buffett invests in and that extra margin makes the difference.  In the context of your original article, the lower-risk 'cake and underwear' investments let Buffett go big on the things that will make 20%+ returns on billions of dollars, without completely destroying his investment capital when things take a turn for the worse." "You should only invest in individual stocks if you truly understand the company's business model and follow its financial reports closely.  Even then, individual stocks should represent only the tiniest, most ""adventurous"" part of your portfolio, as they are a huge risk. A basic investing principle is diversification.  If you invest in a variety of financial instruments, then: (a) when some components of your portfolio are doing poorly, others will be doing well.  Even in the case of significant economic downturns, when it seems like everything is doing poorly, there will be some investment sectors that are doing relatively better (such as bonds, physical real estate, precious metals). (b) over time, some components of your portfolio will gain more money than others, so every 6 or 12 months you can ""rebalance"" such that all components once again have the same % of money invested in them as when you began.  You can do this either by selling off some of your well-performing assets to purchase more of your poorly-performing assets or (if you don't want to incur a taxable event) by introducing additional money from outside your portfolio.  This essentially forces you to ""buy (relatively) low, sell (relatively) high"". Now, if you accept the above argument for diversification, then you should recognize that owning a handful (or even several handfuls) of individual stocks will not help you achieve diversification.  Even if you buy one stock in the energy sector, one in consumer discretionary, one in financials, etc., then you're still massively exposed to the day-to-day fates of those individual companies.  And if you invest solely in the US stock market, then when the US has a decline, your whole portfolio will decline.  And if you don't buy any bonds, then again when the world has a downturn, your portfolio will decline.  And so on ... That's why index mutual funds are so helpful.  Someone else has already gone to the trouble of grouping together all the stocks or bonds of a certain ""type"" (small-cap/large-cap, domestic/foreign, value/growth) so all you have to do is pick the types you want until you feel you have the diversity you need.  No more worrying about whether you've picked the ""right"" company to represent a particular sector.  The fewer knobs there are to turn in your portfolio, the less chance there is for mistakes!" On what basis did you do your initial allocation of funds to each stock?   If you are 're-balancing' that implies returning things to their initial allocation.  You can do this without any research or recommendations. If you started out with say 10 stocks and 10% of the funds allocated to each stock, then re-balancing would simply be either buying/selling to return to that initial allocation.  If you are contributing to the portfolio you could adjust where the new money goes to re-balance without selling.  Or if you are drawing money from the portfolio, then you could adjust what you are selling. If on the other hand you are trying to decide if you want to alter the stocks the portfolio is HOLDING, then you have an entirely different question from 're-balancing' "Great question! While investing in individual stocks can be very useful as a learning experience, my opinion is that concentrating an entire portfolio in a few companies' stock is a mistake for most investors, and especially for a novice for several reasons. After all, only a handful of professional investors have ever beaten the market over the long term by picking stocks, so is it really worth trying? If you could, I'd say go work on Wall Street and good luck to you. Diversification For many investors, diversification is an important reason to use an ETF or index fund. If they were to focus on a few sectors or companies, it is more likely that they would have a lop-sided risk profile and might be subject to a larger downside risk potential than the market as a whole, i.e. ""don't put all your eggs in one basket"". Diversification is important because of the nature of compound investing - if you take a significant hit, it will take you a long time to recover because all of your future gains are building off of a smaller base. This is one reason that younger investors often take a larger position in equities, as they have longer to recover from significant market declines. While it is very possible to build a balanced, diversified portfolio from individual stocks, this isn't something I'd recommend for a new investor and would require a substantial college-level understanding of investments, and in any case, this portfolio would have a more discrete efficient frontier than the market as a whole. Lower Volatility Picking individual stocks or sectors would could also significantly increase or decrease the overall volatility of the portfolio relative to the market, especially if the stocks are highly cyclical or correlated to the same market factors. So if they are buying tech stocks, they might see bigger upswings and downswings compared to the market as a whole, or see the opposite effect in the case of utilities. In other words, owning a basket of individual stocks may result in an unintended volatility/beta profile. Lower Trading Costs and Taxes Investors who buy individual stocks tend to trade more in an attempt to beat the market. After accounting for commission fees, transaction costs (bid/ask spread), and taxes, most individual investors get only a fraction of the market average return. One famous academic study finds that investors who trade more trail the stock market more. Trading also tends to incur higher taxes since short term gains (<1 year) are taxed at marginal income tax rates that are higher than long term capital gains. Investors tend to trade due to behavioral failures such as trying to time the market, being overconfident, speculating on stocks instead of long-term investing, following what everyone else is doing, and getting in and out of the market as a result of an emotional reaction to volatility (ie buying when stocks are high/rising and selling when they are low/falling). Investing in index funds can involve minimal fees and discourages behavior that causes investors to incur excessive trading costs. This can make a big difference over the long run as extra costs and taxes compound significantly over time. It's Hard to Beat the Market since Markets are Quite Efficient Another reason to use funds is that it is reasonable to assume that at any point in time, the market does a fairly good job of pricing securities based on all known information. In other words, if a given stock is trading at a low P/E relative to the market, the market as a whole has decided that there is good reason for this valuation. This idea is based on the assumption that there are already so many professional analysts and traders looking for arbitrage opportunities that few such opportunities exist, and where they do exist, persist for only a short time. If you accept this theory generally (obviously, the market is not perfect), there is very little in the way of insight on pricing that the average novice investor could provide given limited knowledge of the markets and only a few hours of research. It might be more likely that opportunities identified by the novice would reflect omissions of relevant information. Trying to make money in this way then becomes a bet that other informed, professional investors are wrong and you are right (options traders, for example). Prices are Unpredictable (Behave Like ""Random"" Walks) If you want to make money as a long-term investor/owner rather than a speculator/trader, than most of the future change in asset prices will be a result of future events and information that is not yet known. Since no one knows how the world will change or who will be tomorrow's winners or losers, much less in 30 years, this is sometimes referred to as a ""random walk."" You can point to fundamental analysis and say ""X company has great free cash flow, so I will invest in them"", but ultimately, the problem with this type of analysis is that everyone else has already done it too. For example, Warren Buffett famously already knows the price at which he'd buy every company he's interested in buying. When everyone else can do the same analysis as you, the price already reflects the market's take on that public information (Efficent Market theory), and what is left is the unknown (I wouldn't use the term ""random""). Overall, I think there is simply a very large potential for an individual investor to make a few mistakes with individual stocks over 20+ years that will really cost a lot, and I think most investors want a balance of risk and return versus the largest possible return, and don't have an interest in developing a professional knowledge of stocks. I think a better strategy for most investors is to share in the future profits of companies buy holding a well-diversified portfolio for the long term and to avoid making a large number of decisions about which stocks to own." There is no difference.  When dealing with short positions, talking about percentages become very tricky since they no longer add up to 100%.  What does the 50% in your example mean?  Unless there's some base amount (like total amount of the portfolio, then the percentages are meaningless.  What matters when dealing with long and short positions is the net total - meaning if you are long 100 shares on one stock trade and short 50 shares on another, then you are net long 50 shares. I don't know that I can answer the question fully, but 2 points. The percent that represent capital gains certainly can't exceed 100. Did you mean 50% but the 500% is a typo?  More important, funds held in retirement accounts have no issue with this, Cap Gains are meaningless within tax deferred accounts. I don't know the ratio of stocks held in these accounts vs outside, just that the 2011 year end total retirement account worth was $17 trillion. (That's 12 zeros) This strikes me as a high ratio, although more numbers digging is in order. Split the difference. Max it out, sell half immediately and wait a year or more for the rest. Or keep a third... whatever works for your risk tolerance. A perfectly diversified portfolio with $0 in it is still worth $0. "First note that CIBC issued these bonds with a zero coupon, so they do not pay any interest.  They were purchased by the market participants at a small premium, paying an average of 100.054 for a nominal value of 100.  This equates to a negative annual ""redemption"" yield of 0.009% - i.e., if held until maturity, then the holder will witness a negative annual return of 0.009%. You ask ""why does this make sense?"".  Clearly it makes no sense for a private individual to purchase these bonds since they will be better off simply holding cash.  To understand why there is a demand for these bonds we need to look elsewhere. The European bond market is currently suffering a dwindling supply owing to the ECBs bond buying programme (i.e., quantitative easing).  The ECB is purchasing EUR 80 billion per month of Eurozone sovereign debt.  This means that the quantity of high grade bonds available for purchase is shrinking fast. Against this backdrop we have all of those European institutions and financial corporations who are legally obliged to purchase bonds to be held as assets against their obligations.  These are mostly national and private pension funds as well as insurance companies and fund managers.   In this sort of environment, the price of high quality bonds is quickly bid up to the point where we see negative yields. In this environment companies like CIBC can borrow by issuing bonds with a zero coupon and the market is willing to pay a small premium over their nominal value. TL/DR The situation is further complicated by the subdued inflation outlook for the Eurozone, with a very real possibility of deflation.  Should a prolonged period of deflation materialise, then negative redemption yield bonds may provide a positive real return."