Any long term investor will know that they need to manage risk in their portfolio. The way individuals should manage their risk is asset allocation and diversification. Today, I am discussing how I manage risk in our income portfolio. The objective of this risk analysis is to make sure that TIP portfolio is not exposed to any particular event, or company, or any other aspect that will affect portfolio performance.
My portfolio management process has a risk management process in which I try to:
- Maintain pre-determined asset class allocation;
- Maintain pre-determined diversification, any sector should not exceed 10%;
- Any single stock should not exceed 7% of the portfolio;
- Dividends from a single stock should not exceed 5% of total dividend cash flow.
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Many times on this blog, I have mentioned that my investing style is very much objective driven. I tend to follow the systemic approach. Whenever I think about my investments, I tend to look at from the full portfolio investments perspective. In addition, I also believe in continuous evolution, and hence I make changes as I learn more about any aspects of investing. Readers of this blog will find that I do not talk about mutual funds. That’s because I am not a fan a mutual funds.
In this post, I am providing an overview of my investment buckets. These buckets address my long term investment risk profile for 10+ years and beyond. This description is not related to asset allocation or diversification. The graphic below provides an schematic for overall perspective. Continue reading rest of this article…
