How to allocate and diversify

In this Zero to Hero post, the main area of focus will be on how to manage your portfolio and the depths of diversification. While being in the market you want to understand your positions and have exposure to different derivatives. Having funds in the market is a great way to compound your money and grow wealth, but you want to stay protected from industry headwind and bear markets. Say for example your whole portfolio consist of the hospitality sector, you have all your capital in restaurants, hotels, and travel because before Covid-19 these were all booming industries which you thought would continue.

PEJ Hospitality sector ETF restaurants and hotels with still a meh recovery

Then the big bad corona virus comes in and blows everyone hats off leaving market downturn but especially major headwind to the hospitality sector leaving you deep in the red. You cant predict events like these so you want too prepare for the worst so you can perverse your capital, and be able too stay in the game for the long run.

One way too prepare while having less risk too a special case corona virus is too diversify and have an allocation strategy. This means having your money in a variety of sectors along with different allocation percentages which effectively gives an investor less risk, that can offset losses. Starting with diversification you want exposure too different industries along with hedges against the stock market in case the market is red on a grand scale your hedges will do the inverse.

Hedges are like safe havens, its an extra couching that will lighten the fall and provide you with capital too buy more stock. Buy more? When i just lost money? This guys gotta be crazy, but in reality you’re getting discounts of businesses you like in bear markets and want a cash position just for that. Their are multiple hedges that people have money in exchange for protection such as precious metals, bonds, bitcoin, shorts, or buys on inverse ETFs. These are for the bearish side, I wouldn’t recommend being a perma bear and only allocating about less than a fifth of your portfolio to hedges.

On the switch side for long buys where you think their is opportunity, there are multiple industries that have room too run. In a portfolio I recommend no more then 9 positions and no less than 3, this because you dont want too be over diversified and want too understand what your buying. On the flip side for less than three positions you dont want too put all your eggs in one basket, especially if you are older and cannot afford any risk.

For long positions I recommend a mix of ETFs with higher weightings(about a third or less of your total portfolio) as well as individual businesses with a weighting of about 15% or less. Personal industries I like are tech, green energy-uranium-solar-wind, and consumer discretionary. This is no investment advice I am not a financial adviser and this is only for educational purpose. All advice is on my personal activities manage your own risk accordingly. If you cannot mitigate the risk contact your closest financial adviser. Although this can give some ideas too start you, need too understand what you buy and know why(the thesis).

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