Here are the first three areas for which individual investors should develop rules to better manage their holdings:
Minimum position size: Most people start investing with whatever they can afford (I know I did). No investment is “too small.”
That changes as your assets grow.
A “minimum position size” helps regulate your portfolio.
For example, if your portfolio is worth $500,000, you might decide that 1 or 2% of that total is your floor level.
At that point, for any position of less than $5,000 (that amount being 1% of your total holdings), you must either size up or sell.
If you don’t want to increase your position and add to your holdings today, it’s a sell signal. Make a change and use the proceeds for things you’d like to own now.
The maximum number of positions you hold: Investors can build simple, effective portfolios with five to 12 funds, less if they are comfortable putting virtually everything into appropriate target-date/life-cycle funds.
A diversified stock portfolio requires more components, but the number should be manageable.
Lee in Daytona, for example, has amassed 100-plus investments over the years, and he’s almost never sold anything. He’s got faded blue chips, tiny positions in companies spun out of his holdings, and at least a dozen mutual funds (out of about 40) that seemingly were picked after gracing the cover of a magazine.