Managing Risk

Once you’ve made some progress on the “survival” part of the Guide,you’ll get accustomed to losing money.  Yes, I said losing money.  That’s part of the game of investing.  No one, not even the most successful investors in the world avoid making mistakes.  The key to this business is to make mistakes you can recover from.  There are a few basic ways to do this.  The number one way is diversification.  Don’t put all your eggs in one basket.  The optimum level of diversification is  no single position accounting for more than 8-12% of your portfolio.  No sector should command more than 20-25%.  It’s important to remember the sector rule as often times all stocks in a given sector will be correlated for some period of time.  Even the best house in a bad neighborhood is going to be a tough sell.

Are you an Aggressive or Conservative Investor?  Understanding Beta

Using Index Options to Hedge a Portfolio