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Over the years, I predicted a few assets that went up in price a ton. However, I never owned any of those assets. Stuff like FAANG, Tesla, Bitcoin. Had I invested in those at a young age by the time I reached my 40s I would have most likely owned a rather successful investment firm today.

The majority of my portfolio is in assets I believe the wider market is being overly pessimistic about. By my assessment the risk level is not too high. A slightly smaller portion is in blue chips. I basically pull profits out over mutliple years and put it into bluechips.

I currently, have a small portion of my portfolio in high risk assets. A very small portion are in lottery ticket type stocks, while a larger portion of this are in stocks with deep value that serve markets with very little competition.

The last thing I want is to miss assets I identify as undervalued for the long term. What percentage of my money should be going to higher risk investments to diversify while still maintaining exposure to windfall profits?

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  • Diversification?
    – littleadv
    Commented Apr 9 at 6:52

3 Answers 3

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Over the years, I predicted a few assets that went up in price a ton.

That's not the point. Anybody can predict assets that went up a ton. If I name a hundred hot stocks right now, many of them will go up a ton in ten years. Many of them will also go broke in ten years. The trick is to be able to do the prediction consistently, knowing which will go up and which will not. If you think you did that I invite you to consider the concept of selective memory. Everybody remembers themselves telling their friend that they predicted Apple would go up - nobody remembers themselves doing the same for Enron. Unless you kept accurate track of an imaginary portfolio, be very careful of what you think you predicted.

One thing I note is that you say you confidently picked a hugely undervalued stock and that you argued with your father about whether he should invest in it or not. But at no point were you confident enough in your prediction to actually invest your own money - not even $100.

The one thing I'm trying to avoid missing other opportunities like Bitcoin.

There are thousands of opportunities out there. You cannot invest in them all. Even huge investment funds cannot invest in every opportunity. They, and every good investor, chooses their opportunities and invests in them. If they yield a good profit they congratulate themselves. They don't worry that they failed to also invest in other opportunities that did even better.

The last thing I want is to miss future assets I identify as undervalued for the long term.

No, the last thing to want is to incorrectly pick assets you think are undervalued and lose all your investment money. That's much more likely and what you should put your effort into avoiding. If you can consistently pick winners and avoid losers you will be an astonishingly successful investor, whether you leave opportunities on the table or not.

The feeling you are having is called FOMO - Fear of Missing Out. It's where you feel upset that even though you are having a very good life, someone somewhere is having a better one that could have been yours. Ignore the feeling. It will ruin your life if you let it.

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  • I know I did it. I had arguments with my wealthy father over the years when I was trying to start a fund with those assets. I was denied every time since he did not understand computers nor the internet. Years later, financial advisors told him to buy some of those assets. Of course, you want to miss huge losses. I'm asking how to properly diversify so exposure to large gains remains open, while minimizing the losses. Over the years the one thing I've noticed is a lot of investors are too risk adverse, and they miss investing in Nvidia at 50 cents, when NVidia never had any competition.
    – ZeroPhase
    Commented Apr 9 at 14:43
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    I still stand by my answer. "Trying to find every opportunity" is not what "diversification" means. If you meant to ask about diversification you might want to rewrite the question. Commented Apr 9 at 15:03
  • Sure, I'll rewrite the question to focus more on the percentage of the portfolio that should be directed to higher risk stocks. I'm not trying to find everything. I'm trying to make sure to invest in the high risk assets I understand knowing shit happens with some, while a portion should work out.
    – ZeroPhase
    Commented Apr 9 at 15:29
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Zero percent of the portfolio that you are actually counting on being there in the future should be at high risk.

High risk is what you might do with a small amount that you can afford to lose, in the hope that you might get lucky. You should expect that most such attempts will lose rather than gain; if you are lucky, enough of them will gain enough that the total is positive. It may still not average out to better than market rate.

If you do hit it big, you should put the portion of the earnings you want to keep back into lower risk vehicles, and again risk only what you are willing to throw away.

If you lose the money, you can decide whether anything you still have left is disposable and if so consider another high-risk choice.

Pick a strategy. Rebalance as appropriate. Avoid the sunk-costs fallacy. Remember that risk of loss and potential reward are directly linked. Remember that most things look easy to the man who doesn't have to do them. TANSTAAFL.

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  • What's the recommended percentage of the portfolio? I am keeping high risk relatively low according to my analysis. My portfolio in general might be slightly riskier than others from me noticing most investors are afraid of risking losses more than they value gains. So, far I have had periods of performance below market, but I also have periods of significantly above market rates. Some of these investments might not pay off for multiple years. I keep holding as long as my thesis holds.
    – ZeroPhase
    Commented Apr 11 at 8:13
  • Sed my first sentence. High-risk isn't part of the investment portfolio, in my opinion. It's speculation, which is a separate category. It's something you can do with money you don't actually need. BTW, everyone has periods both below and above market rates; that's the nature of a noisy signal, and of the market itself. One of the things an investor has to learn us how to stay with a plan rather than overreacting. So knowing when to hold is a good thing. So is evaluating whether something else is more promising.
    – keshlam
    Commented Apr 11 at 13:26
  • Ah ok, I list speculation as part of an investment portfolio. I don't consider buying NVidia in 1999 at 50 cents speculation, since they were the leader in their field back then. What I consider speculation is investing in a company with a drug that cures cancer if approved, during phase II trials. I believe I have a higher risk tolerance than most.
    – ZeroPhase
    Commented Apr 11 at 21:04
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    Lots of companies can be "leaders in their field" and still go bust when it turns out that their field wasn't actually that important. Or a big player swept into their field and destroyed the competition. Or something else fundamentally went wrong with their business plan. Commented Apr 13 at 19:16
  • Also note that how much risk you can afford depends upon your time horizon. In your twenties, you have 40 years before retirement to recover from any mistakes you make. In your 40s, retaining enough of what you've already saved becomes a more important factor. Once you retire, your focus should be on making sure that your essential retirement money less as long as you need it to, which may involve just enough risk that your returns offset inflation. And of course, money that isn't for retirement is yours to do with what you will -but be sure a clear path to retirement is in your plans.
    – keshlam
    Commented Apr 16 at 16:51
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There's no concrete answer to this question. This change from individual to individual. The answer is dependent on so many factor and cannot be summarised, to name some:

  1. It might change for a person in early age to someone near retirement age.
  2. Your dependency on your investment portfolio
  3. Risk Tolerance: It’s essential to assess how much risk you’re willing to take. High-risk investments often have a higher chance of loss, so they’re not suitable for everyone.
  4. Investment Goals: Define whether your goal is capital growth, income production, or asset preservation. High-risk assets are typically associated with the goal of capital appreciation.
  5. Asset Allocation: A common strategy is to allocate a higher percentage to equities for the potential of higher returns, balanced with a smaller share in fixed-income assets like bonds or cash, which are generally lower in risk. something like 80:20, 60:40, or might change from individual to individual.

it’s important to remember that these percentages are not one-size-fits-all and should be tailored to individual circumstances, including your financial goals, investment horizon, and personal risk tolerance.

It’s always wise to consult with a financial advisor to determine the best asset allocation for your specific situation.

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  • why is it not relevant?, it’s not bot generated but a human written answer
    – Shyam Mang
    Commented Apr 13 at 19:42
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    The human hasn't addressed the question, which is asking for a specific percentage to put into high-risk equities, or at least a clear set of principles on which to calculate that percentage. The answer doesn't really give either; it's generic and investing advice. Might be a good answer for a different question, but I think it's off target here. Others may, of course, disagree with me.
    – keshlam
    Commented Apr 13 at 23:42
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    @ShyamMang One of the existing answers essentially does give "an exact percentage" ("Zero percent ..."), but both specifically address why the question's request for an exact figure is the wrong approach: a so-called "frame challenge", which is generally an acceptable response on SE. However, your reply, while a reasonable response to a more generic "how should I invest my money", neither addresses nor challenges the OP's core question.
    – TripeHound
    Commented Apr 14 at 6:45
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    Stock exchanges list marginal companies all the time. Some people like to and/or can afford to take high risks for high return. I'm seriously considering putting $10k into a business I expect to fail. But importantly, that's $10k I am willing to lose; this is speculation, not core investing. And that's the distinction I explained in my answer. Folks who disagree with me will down-vote me, folks who think my answer was helpful will up-vote, and the cumulative community review of my answer is displayed; that's how Stack Exchange works.
    – keshlam
    Commented Apr 14 at 16:47
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    And apologies if you found my comment rude. It was only intended to be terse.
    – keshlam
    Commented Apr 14 at 16:49

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