August 8, 2023 • 28 mins
How much of your portfolio is safe to hold in one individual stock?
While 5% or 10% is typically recommended, rules of thumb like these are often irrelevant and harmful. The right answer depends upon your specific situation.
James explains the right way to determine how much individual stock you should hold based on your situation.
Questions Answered:
How much is okay to have in an individual stock?
What conditions make owning individual stock acceptable or unacceptable?
Timestamps:
0:00 Intro
2:02 Monica's story
3:30 Individual stocks
5:02 Example 1
7:45 Conditions
10:18 Technicalities
12:37 Example 2
14:34 Emotional implications
16:11 Framework
19:43 Portfolio size
21:49 Time best spent
22:50 Underperforming
25:07 Why diversify?
27:01 Outro
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
How much of your portfolio is safe to hold in one
individual stock.
Well, the general rule of thumbsays 5% or 10%, but rules of
thumb are often irrelevant atbest and can even be harmful at
worst.
The right answer depends uponyour specific situation, and
we're going to cover that andmore in today's episode of Ready
for Retirement.
This is another episode ofReady for Retirement.
(00:24):
I'm your host, James Cannell,and I'm here to teach you how to
get the most out of life withyour money.
And now on to the episode.
One area where I would say myphilosophy differs from that of
a lot of other financialplanners is many times a
financial planner will say donot own individual stocks, or,
if you do, keep it to 5% or lessof your portfolio.
(00:46):
And while I get the concept orthe intention behind it, there's
not just a blanket way orcookie cutter way to look at
this and have any idea of sayingyour ability to hold individual
stocks and the appropriatenessof it in your portfolio is
different than that of someonecompletely different.
Now, there are parameters thatyou should follow, though.
So when it comes to holdingindividual stock and making sure
(01:08):
you do so while also having afirmly established and
well-defined plan.
It depends on your situation,and so in today's episode I'm
going to cover that, but beforewe do, I want to quickly
highlight the review of the week.
This week's review comes fromusername marker V and it says
five star the best financialplanning podcast.
Straight show, straight talk,understandable and practical,
(01:28):
pragmatic information to helpplan for enjoyable life in
retirement.
Marker V, thank you very muchfor that review.
I appreciate all of you who aretaking the time to do so.
I read them all, I get them all.
That's important feedback forme, but, most importantly, it
helps more people to find thisshow.
So, if this has been helpful toyou, if any of this content has
, I'd appreciate it if you wouldshare this podcast with friends
(01:50):
, with family, with coworkers,and also take a few minutes or a
couple of minutes or 30 secondsto leave a review, if you're so
inclined.
So thank you for all of you whohave done that.
And now let's get on to theshow.
So I love all my clients, ofcourse, but one of my favorite
clients we're going to call herMonica and it's with her
permission to share in thisstory but she brought up an
(02:10):
interesting, or she made aninteresting comment.
I should say a couple of weeksback when we were meeting
together.
So Monica has always been agood savior, a good investor,
and she's worked at Apple.
She just recently retired, butshe worked at Apple for 20 plus
years before retiring.
And she brought up the comment.
She said gosh, I feel so goodnow with the plan that we have.
How much better would thingshave been had we started doing
(02:31):
this, say, 20 plus years ago,back when I had questions about
what to do with 401k and howmuch stock is okay to have in
company stock, and so it got usto thinking and got us to
talking about okay, how muchshould a specific person have an
individual stock?
And so I mentioned a couple ofthings to her.
But number one well, monica, Istarted doing this 12 years ago,
(02:51):
so unfortunately would not havebeen around 20 years ago to be
doing this type of thing.
But number two, assuming I hadbeen, I'm not so sure Well, I'm
almost convinced that yourreturns would not have been as
good as they were over those 20plus years, simply because you
had a good chunk of your moneyin Apple stock.
And it's no secret that Applestock has done incredibly well
(03:12):
over the past 20 plus years.
So, as we get to thinking aboutthis, or having this
conversation is bringing us aninteresting points of given your
specific situation whether it'swith 401ks or Roth accounts or
brokerage accounts or stockcompensation or just individual
stocks what should that looklike?
How much is okay to have anindividual stock?
How much can contribute to yourplan versus at what point does
(03:35):
it potentially detract from yourplan and even become dangerous?
And here's the thing aboutindividual stock.
When people come to me and say,james, how much stock is okay
to have in a plan, there's thissense of we want a precise
answer, as if it depends uponthe specific stock.
So, for example, if it's anIKIE stock, you can hold this
percent, but if it's Tesla stock, that percent, or whatever the
(03:56):
case might be, because thethinking is oh, this company
stable, this company paysdividends, this company has been
around 100 plus years versusthat company.
Well, that company is kind of awild card and maybe it goes off
and goes crazy, but maybe itgoes out of business.
And, yes, there is some smalldegree of truth in that.
But the reality is, all stocksare risky.
You can't point to a singlestock and say there is no risk
(04:19):
in this company.
Yes, you can point to somecompanies and say, hey, this
company's probably going to bearound for another 30, 40, 50
years.
That could be the case,no-transcript, and the company
still dramatically underperformsthe market.
So the first thing to recognizeis it does not matter the
specific stock you're looking at.
Every single individual stockcarries a significant amount of
(04:39):
risk in it.
That's the nature of investingin equity in companies and
stocks.
Another thing to note before wedive into the specifics here and
this is stating the obvious,but I think sometimes the
obvious needs to be stated,otherwise we can unintentionally
start to make wrong assumptionsabout stock returns.
But this answer would obviouslybe very different if we knew
(04:59):
exactly which stocks were goingto outperform.
For example, in Monica's case,she held a lot of Apple because
she worked at Apple for a longtime.
That turned out to be the rightdecision.
So if 20 years ago I could havegone back in time and known
exactly what was going to happenwith Apple, I would say do not
dare diversify the stock.
This stock is going to beincredible.
You should keep it in the sameway.
(05:21):
With the benefit of hindsight, Iknow what the winning lottery
numbers were.
So if I had gone back to theperson who bought the winning
lottery ticket, I would havesaid absolutely, buy that ticket
.
I know, because of the benefitof hindsight, that this is going
to be a winner.
However, today, looking forward, I have no idea what the next
(05:41):
lottery numbers are going to be.
So if you came to me and said,james, should I buy a lottery
ticket, I would say absolutelynot.
That's not a wise use of yourmoney because I don't know the
future, but I do know the oddsof you picking the winning
lottery ticket are very small.
So when we're looking atindividual stocks and I know
this is stating the obvious youmight be saying James, get on
with it.
But it's so important becausewhen it's our company we're
(06:03):
investing in, or the companythat we work for or has a long
track record of superior returns, it's very easy to fall into
the trap of thinking that'sgoing to continue.
Well, if that was going tocontinue if Apple stock, for
example, is going to do over thenext 20 years Apple stocked it
over the last 20 years I wouldsay there's no reason to own any
other investment in yourportfolio other than that.
(06:24):
Obviously a disclaimer.
That's not a recommendation.
This is just an illustration.
But if that was the case, and itwas that easy, diversification
is kind of dumb.
Why would we accept lowerreturns?
Well, we accept market returnsbecause we don't know what the
return of an individual stock isgoing to be and more on this
later.
The average return of theaverage individual stock is
(06:46):
actually less than the averagereturn of the market as a whole.
So if Monique, for example,hadn't worked for Apple for the
last 20 years, but she hadworked for the company that
Apple displaced Blackberry, herfinancial situation would be
wildly different, becauseBlackberry stock had the
opposite experience of Applestock.
So in retrospect it seemsobvious which stocks were going
(07:07):
to be the winners.
But going forward and lookingforward, it's impossible to know
over the next 30, 40, 50 yearswhat is going to do best.
So, as we're having thisconversation, I don't care if
it's Apple stock, that you haveAT&T stock, visa stock or
something entirely different.
It depends less on theindividual stock and more on
your specific situation, becausein some cases the right
(07:30):
percentage to own an individualstock is exactly 0% and if you
own any, it starts topotentially be harmful to your
situation versus in others, youcould make a case for having the
majority of your portfolio inan individual stock and still be
okay.
So what we need to look at iswhat are the conditions that
would make owning individualstock acceptable or unacceptable
(07:52):
, and to what extent would it beacceptable given the overall
portfolio that you have and thegoals you're trying to do?
So here's an example of howthis could be the case.
Let's assume that you have twopeople.
Now both of these people cometo you and they say I want
$50,000 per year for myportfolio.
How much can I have anindividual stock?
Well, you might be tempted tosay well, they're the same
(08:15):
person, but just duplicated sameage, let's say same needs from
their portfolio.
Should they therefore have thesame capacity to own individual
stock?
Well, not necessarily.
It all comes down to theirportfolio value.
Let's assume person number onehas a million dollars in their
portfolio.
In person number two has fivemillion dollars in their
(08:37):
portfolio.
Well, what you need to do isyou need to work backwards.
We know that both of theseindividuals need $50,000 per
year from their portfolio.
How much portfolio or whatportfolio size is required to
make that happen?
Well, this, of course, is whereyou want to understand.
What withdrawal rate are yougoing to use and how are you
going to diversify yourportfolio in a way to support
(08:58):
that?
But let's assume that yourportfolio, based on the way it's
diversified in your age andtime horizon, it can support a
5% per year withdrawal rate.
Okay, to get $50,000 per year,you would need $1 million,
because 5% of a million dollarsis at $50,000 per year.
So how much can person oneafford to have in stocks?
(09:19):
I'd argue 0%, or at least very,very little.
Because any individual stockhas the potential to go the way
of Blackberry, to go the way ofSilicon Valley Bank, to go the
way of Enron, to go the way ofmany of these companies that
have had disastrous returns oreven outright gone bankrupt.
(09:39):
So if you take a million dollarportfolio and put 10% of it in
an individual stock and thatindividual stock performs
horribly, the implications ofthat are you really only have
900,000 left, or 900,000 pluswhatever small amount is left in
that stock.
The implications of that areyour spending has to change.
So if it's an unacceptableoutcome for you to have to
(10:02):
reduce your spending down from50,000 per year, then it's
unacceptable, in my opinion, tohold any degree of risk in there
to that, to hold any degree ofrisk that your spending would
have to be cut because of thebad performance of a single
company.
Now, there are sometechnicalities around this.
So I did say, hey, I don't carewhat stock you own, all stocks
(10:24):
carry an inherent degree of risk.
There is truth to that.
But there's also truth to this.
If you look at the market as awhole, so the S&P 500, in this
case, the largest 505 or socompanies in the US Well, if you
look at Apple, which is thelargest of the holdings, so the
S&P 500 is what's called amarket cap weighted, so the
(10:44):
largest of those companies isgoing to represent a greater
percentage of the S&P 500 thanis the smallest of the companies
.
Well, apple, as of thisrecording, is the largest
company.
It makes up 7.5% of the S&P 500.
That's a pretty significantallocation of the S&P 500 to one
single company and that's justdue to, of course, apple's large
(11:04):
size Versus.
Today, as of this recording,the 500th company in the S&P 500
is Lincoln National Corporation.
Lincoln National makes up 0.01%of the S&P 500.
So you could absolutely make theargument that, look, if I'm
owning one of the top five ortop 10 or top 15, whatever
you're looking at companies inthe S&P, could I get away with
(11:27):
owning more of that?
You could get away with thatfrom the standpoint of it's not
deviating that significantlyfrom the rest of the market.
If I own 5% in Apple and havethe rest of my portfolio
offsetting that, that might benot too different than what
Apple makes up in the market asa whole, versus if I own 5% of
(11:48):
my portfolio in Lincoln NationalCorporation.
This is neither an endorsementfor or against this specific
stock.
But now all of a sudden, I'msignificantly skewed in terms of
my weighting to each of thecompanies or each of the stocks
that whatever index or fund orasset class I'm trying to hold
represents.
So you can make somedistinction within that.
(12:08):
But in general, I would look atit from the standpoint of if I
have a million dollars in thisexample and I can't afford to
lose any of it via an individualstock going out of business,
well, I need that full milliondollars to be diversified.
Hey, everyone, it's me again forthe Disclaimer.
Please be smart about this.
Before doing anything, pleasebe sure to consult with your tax
planner or financial planner.
(12:29):
Nothing in this podcast shouldbe construed as investment, tax,
legal or other financial advice.
It is for informationalpurposes only.
Now let's take a look atindividual number two.
As we've already established,individual number two also needs
$50,000 per year.
We can therefore infer theindividual number two also needs
at least a million dollars,diversified in such a way that
(12:53):
it can support that $50,000 peryear.
However, individual number twodoesn't have $1 million to make
this happen.
Individual number two has $5million to make this happen.
So, to keep it super simple,you could say $1 million of that
, $5 million needs to bediversified because that's the
portion of the portfolio that'sgoing to cover your needs.
(13:14):
If you want to take a simpleneeds analysis perspective, well
, the excess $4 million underthis perspective is technically
that it's excess.
So how much of it could youafford to invest in a single
stock?
Well, technically, I'd argueyou could afford to invest 100%
of it into an individual stock,because you always have to look
at worst case scenario.
(13:34):
Assume that $4 million wasinvested into Silicon Valley
Bank.
Well, bummer, you just lost 80%of your entire portfolio.
You lost 100% of your stock,but that stock represented 80%
of your overall portfolio.
But you're still technicallyokay from the standpoint that
you have $50,000 per year thatyou can still create from your
(13:55):
remaining portfolio balance.
Now, just because you're okayfinancially does not mean that,
in reality, you would be okay.
You would be pretty darn upsetif your $5 million portfolio
turned to $1 million over a veryshort period of time because
you invested 80% of your stockinto a single stock that went
bankrupt.
Now let's take a big step back.
Are the odds high that you'regoing to put all your money into
(14:19):
an individual stock that'sgoing to go bankrupt?
Statistically speaking, no, theodds are not high.
However, that is a risk, anddoesn't even need to be a full
bankruptcy for this to derailyour plan.
If you're dependent upon theindividual stock, even just
underperformance can bedisastrous, depending upon how
you're structuring this.
But the other side to this isthe emotional side.
(14:40):
As we just established, if youdo a simple needs analysis and
you have $5 million in thisportfolio, you only need to
diversify $1 million, whichmeans, technically, you could
allocate the remaining $4million to an individual stock.
It doesn't mean it's the wisest, but technically you could
afford to financially.
What you have to ask yourself,though, is emotionally, are you
actually going to be okay Evenif the stock's not going down?
(15:04):
Are you going to be okay.
Most people just think about itfrom the standpoint of okay, if
I invest in an individual stockand the individual stock is
going down quite a bit, that'swhen it's causing some emotional
distress.
But it's also the opposite.
Now, when stocks are going up,yes, that's bringing a lot of I
won't call it joy, but maybe abig degree of dopamine is being
(15:25):
released and it's creating someextreme excitement.
But even that can becomeall-consuming and it can become
almost as addictive behavior as,as you have a lot of money in
an individual stock, those dailyswings, even if they're
trending upward, can start totake a toll on your emotional
health.
I've seen this time and timeagain.
So don't just think of it fromthe standpoint of owning an
(15:46):
individual stock is only bad.
In the case of the stock doesterribly.
It can also be harmfulemotionally, even if it's going
up, because any stock is goingto deviate significantly even on
the way up, and it can becomethis all-consuming thing if
we're not careful about how wepersonally are going to receive
whatever's happening with thatstock.
(16:06):
So a couple more things I wantto touch on that I think are
important with regards to thisdiscussion.
One is just a basic frameworkto follow.
If you're asking yourself thisquestion, here's what I would
start with.
Number one do the needsanalysis.
Understand what level of incomeyou need your portfolio to
support.
Now, this could be basic thingslike basic living expenses and
retirement.
This could be things like homedown payment.
(16:28):
This could be things likesending kids to college.
But number one start withwhat's needed from my portfolio
no-transcript Determining theportfolio size needed to make
that happen.
So in our very basic example, ifwe go back to individual one
and two, maybe I should havegiven them names, but just
individual one and two.
Step one for them understandinghow much they need, that would
(16:49):
be the $50,000 in their case,they would go through an
exercise to say, okay, I need$50,000 per year.
Number two in determining theportfolio size needed to make
that happen, both of theiranswers would have been $1
million and though they both haddifferent portfolio sizes, they
both would have had the sameportfolio size needed to make
their income needs happen.
(17:10):
And then step number three.
That's where I would saydetermine what you want to do
with the excess and why.
So for this step, individualnumber one didn't really have
any excess.
They would really need to makesure their full million dollars
was fully diversified to be ableto support their income needs.
Individual number two however,they did have excess.
(17:30):
They had a $4 million of excess.
Now, just because it's quoteunquote excess doesn't mean that
you should be flippant orunwise with it.
You should absolutely stillseek to do the best you can with
that, whether you technicallyneed it or not.
But that's where you have moreleeway.
If there is an individual stockthat you want to hold or if
there are some unique things youwant to do with it, that's the
(17:52):
amount that you can afford to dosomething with, because even if
it doesn't go according to plan, it's not as if your financial
strategy or your personalsituation is in serious jeopardy
.
So, as we're talking about this, some of you might be thinking
do people really wrestle withthis?
Do people really own a wholebunch of individual stock?
Yes and no.
Where I see this most commonlyis with executives or people who
(18:14):
have some type of stockcompensation plan.
So you have your base salaryand your bonus and you're using
that to put money into 401Ks andto save and to do your
diversifying.
But you also, depending uponyour position with the company,
might have some pretty seriousequity in your company.
So this is what a lot of peoplewant to know, whether they have
restricted stock units.
So RSUs or stock options orincentive stock options or an
(18:37):
employee stock purchase plan.
There's all these types ofdifferent stock compensation and
the question always comes downto how much should I keep in
that plan versus how much shouldI diversify?
So this is where I see thismost commonly and for a lot of
people it can be kind of fun toown stock in your own company.
It can be very fun.
(18:58):
But also keep in mind thecounterpoint to that.
As I mentioned, when you have alot of your net worth tied up
in one individual company, theswings can take a toll on your
emotional health, even if thoseswings on average are trending
upward.
So be cognizant of you and yourown personality of what makes
most sense.
But I have many clients who areexecutives at different
(19:20):
corporations and they do have afairly significant portion of
their net worth in a singlecompany stock and now some of
these stocks have outperformedthe rest of the market.
They've been very glad they'vedone that.
Other clients their stocks haveunderperformed the market.
However, in all situations whatwe did first and foremost is we
went through that basicframework.
What do we need from ourportfolio in the future?
(19:43):
Step one.
Step two what portfolio size dowe need to be able to
accomplish that?
Once we've done that, then stepthree is that what do we do
with a quote unquote excess,which in many cases not always,
but in many cases is what thatstock compensation represents?
So assuming you have your 401ksand brokerage accounts and
(20:03):
other assets positioned in a waythat even if that stock went to
zero or significantlyunderperformed, you would still
be okay, then there's notnecessarily a limit on how much
you can own, and do so safely,in an individual stock.
That's really not a guaranteethat being diversified elsewhere
is somehow going to cause yourstock that you own to
miraculously outperform.
But what it is saying is, evenif that stock doesn't do well,
(20:27):
you're going to be in a positionto where you can buffer it.
You can absorb that and nothave it impact your personal
situation.
Now last part here a lot ofpeople ask me James, what about
you?
What do you personally do?
Now?
Number one just because I dosomething doesn't necessarily
mean it's the best thing in theworld to do.
But number two I think theimportant thing to know and I
tell us to my clients, is I eatmy own cooking.
(20:48):
I actually don't own anyindividual stocks Now.
I have before, but I've sincesold them.
But I ask myself threequestions if I'm going to invest
my money somewhere, whetherit's a stock or anything else,
just a basic framework.
Number one is do I enjoy thisNow picking individual stocks?
Yeah, it's kind of fun, I wouldsay I enjoyed it.
Now, do I enjoy it more thanwork?
(21:11):
Or do I enjoy it more than theother things I like to do
outside of work, with friends orwith family?
No, I don't enjoy it more thanthat.
So when I'm looking at this, isthis where I want to spend my
time?
Or do I get more satisfactionout of the work I do with
clients and the things I do withfriends and family elsewhere?
Well, it's the latter.
So number one in my frameworkof it's not something I enjoy
(21:31):
doing more than the otheraspects of my life.
Now, that's not abe-all-and-all, because there's
some things I don't enjoy doing,but they're very meaningful or
they're very necessary to thefulfillment of my goals, but
that's at least number one.
Do I enjoy it more than theother things I spend time on?
And for me the answer is no.
The second question you have toask is is this where my time is
(21:52):
best spent?
What's the return on investmentof my time?
So, as you're looking atpicking individual stocks, what
time is that consuming, bothfinancially?
So to me, financially, is mytime better spent picking
individual stocks from mepersonally, my personal
portfolio, or is it growing abusiness and improving a
business and working withclients?
I'd argue, I'd just argue, I'dsay definitively that my
(22:16):
greatest return on investment isworking within the business and
working on the things that Ican control.
And then, even relationally,where do I want to invest my
time?
The return on investment I getspending time with my wife or my
daughter or my friends,significantly greater in my mind
than any potential return oninvestment with stocks.
And then number three brings usall together, because some
people might be saying well,James, if you could do better
(22:38):
because you enjoyed it or youdid enjoy spending time there,
wouldn't you do it?
Well, if I enjoyed it and if itwas where my time was best
spent and I could outperform,then absolutely would be a
no-brainer.
But the third point is am Iokay with underperforming?
If I'm going to own individualstocks, I have to be okay with
underperforming.
Jp Morgan put out a great studyand what it showed is that if
(23:01):
you look at the Wilshire 3000,which is pretty much I think
it's 98 or 99% of all thepublicly traded stocks in the
United States going back to 1970, two thirds of those stocks in
the Wilshire 3000 underperformedthe Wilshire 3000 itself.
Well, how could that be?
But what happens with stockreturns is there's a handful
(23:23):
call it 5%, maybe even up to 10%of individual stocks whose
performance is so good that itpulls the rest of the market
along with it.
However, what that means is theother 90 to 95% of stocks
aren't going to do as well andin fact, 67% or two thirds of
stocks are actually going tounderperform the market as a
(23:44):
whole.
So when you're picking anindividual stock, understand the
odds are against you.
The odds are against you thatyou actually outperform the rest
of the market in doing so.
Now you can say, well, it'sobvious what stocks are going to
outperform the market, butyou're only saying that because
of what's happened over the lastfive, 10, 15 plus years.
We can look back now on Teslaor on Apple or on Microsoft or
(24:07):
on Nvidia and say, oh my gosh.
Of course this was going tohappen, but that wasn't the case
10 years ago, 15 years ago.
20 years ago, some of thosecompanies weren't even around at
that time.
Now look at this the bestperforming stocks of the 2000s.
Who would have guessed thatDomino's would have been one of
the best performing stocks?
Or Monster Energy?
Or Netflix?
Go back to the beginning of2000,.
These weren't the companiesthat were top of mind.
(24:30):
So the next 20 years, 30 years,what are the odds of you
picking stocks that willoutperform the rest of the
market?
Well, that would say pretty low, and not just you, not just me,
but even Wall Street.
If you look at people on WallStreet and say, hey, what are
the best performing stocks goingto be, or where's the S&P 500
going to end up this year?
Almost always they are wrong.
(24:50):
The good news is, you don't needto be right to have success.
You just need to make sureyou're properly allocated to the
entirety of the market, ormaybe not the entirety of the
market, but the certain aspectsof the market that you
specifically need to capturewhen you're looking at your
financial plan.
So what's the real reason?
I diversified the biggestreason?
I want to perform the best Ipossibly can.
(25:13):
I want to grow my money thebest I possibly can.
And too often people look atdiversification and say, okay,
that's what you do, if you'reokay with accepting mediocre
returns.
No, that's what you do if youwant to maximize returns.
If you want a greater chance ofunderperforming, then that's
where you pick individual stocksand again a good number of
(25:34):
people will outperform themarket.
But I would argue it's by sheerluck.
Most of the time.
You have as I mentioned beforeyou have to be right a two out
of three chance you'llunderperform the market by
picking an individual stock.
Then you will outperform themarket.
So that's my basic framework.
And then, even when I'minvesting, I'm not just buying
one single index fund.
I'm making sure I'm broadlydiversified in picking the type
(25:56):
of asset classes that are goingto deliver at least,
historically speaking, havedelivered the highest potential
return for a given level of riskI'm comfortable with, based
upon different investment goals.
So that's me, that's myframework, not saying that
everyone has to do it, but I dothink it's important that people
understand what I'm saying.
Something it's not somethingthat this is what you should do,
but I'm going to do thisbecause here's where the
(26:17):
superior returns are.
So that's a basic framework forhow to think about owning
individual stocks.
Are individual stocks bad?
No, can you be just fine evenif a significant part of your
portfolio is an individualstocks?
Yes, heck, you could even belike Monica, who did incredibly
well because her individualstock happened to be one of the
best performing companies of alltime.
However, there's no guaranteegoing forward of that company
(26:41):
continuing to perform that way,or any company performing a
specific way.
So have a plan, understand whatyour portfolio needs are,
understand what portion of yourportfolio needs to be
diversified and understand whatyou want to do with the
remaining portion, both from afinancial standpoint and an
emotional standpoint, ofunderstanding what you'd be
comfortable with.
So I hope that is helpful.
(27:02):
Thank you, as always, forlistening.
If you have not already done so, be sure to leave a review.
Also, if you've not alreadydone so, please be sure to
subscribe to our YouTube channel.
It's called Root Financial.
You'll find this podcast.
You'll find other videos thatare released every single week
to make sure that you're gettingthe most out of life with your
money.
Thanks for listening and I'llsee you next time.
Thank you for listening toanother episode of the Ready for
(27:26):
Attignment podcast.
If you want to see how RootFinancial can help you implement
the techniques I discussed inthis podcast, then go to
RootFinancialPartnerscom andclick Start here, where you can
schedule a call to one of ouradvisors.
We work with clients all overthe country and we love the
opportunity to speak with youabout your goals and how we
might be able to help.
And please remember, nothing wediscuss in this podcast is
(27:47):
intended to serve as advice.
You should always consult afinancial, legal or tax
professional who's familiar withyour unique circumstances
before making any financialdecisions.
How much of your portfolio is safe to hold in one
individual stock.
Well, the general rule of thumbsays 5% or 10%, but rules of
thumb are often irrelevant atbest and can even be harmful at
worst.
The right answer depends uponyour specific situation, and
we're going to cover that andmore in today's episode of Ready
for Retirement.
This is another episode ofReady for Retirement.
(00:24):
I'm your host, James Cannell,and I'm here to teach you how to
get the most out of life withyour money.
And now on to the episode.
One area where I would say myphilosophy differs from that of
a lot of other financialplanners is many times a
financial planner will say donot own individual stocks, or,
if you do, keep it to 5% or lessof your portfolio.
(00:46):
And while I get the concept orthe intention behind it, there's
not just a blanket way orcookie cutter way to look at
this and have any idea of sayingyour ability to hold individual
stocks and the appropriatenessof it in your portfolio is
different than that of someonecompletely different.
Now, there are parameters thatyou should follow, though.
So when it comes to holdingindividual stock and making sure
(01:08):
you do so while also having afirmly established and
well-defined plan.
It depends on your situation,and so in today's episode I'm
going to cover that, but beforewe do, I want to quickly
highlight the review of the week.
This week's review comes fromusername marker V and it says
five star the best financialplanning podcast.
Straight show, straight talk,understandable and practical,
(01:28):
pragmatic information to helpplan for enjoyable life in
retirement.
Marker V, thank you very muchfor that review.
I appreciate all of you who aretaking the time to do so.
I read them all, I get them all.
That's important feedback forme, but, most importantly, it
helps more people to find thisshow.
So, if this has been helpful toyou, if any of this content has
, I'd appreciate it if you wouldshare this podcast with friends
(01:50):
, with family, with coworkers,and also take a few minutes or a
couple of minutes or 30 secondsto leave a review, if you're so
inclined.
So thank you for all of you whohave done that.
And now let's get on to theshow.
So I love all my clients, ofcourse, but one of my favorite
clients we're going to call herMonica and it's with her
permission to share in thisstory but she brought up an
(02:10):
interesting, or she made aninteresting comment.
I should say a couple of weeksback when we were meeting
together.
So Monica has always been agood savior, a good investor,
and she's worked at Apple.
She just recently retired, butshe worked at Apple for 20 plus
years before retiring.
And she brought up the comment.
She said gosh, I feel so goodnow with the plan that we have.
How much better would thingshave been had we started doing
(02:31):
this, say, 20 plus years ago,back when I had questions about
what to do with 401k and howmuch stock is okay to have in
company stock, and so it got usto thinking and got us to
talking about okay, how muchshould a specific person have an
individual stock?
And so I mentioned a couple ofthings to her.
But number one well, monica, Istarted doing this 12 years ago,
(02:51):
so unfortunately would not havebeen around 20 years ago to be
doing this type of thing.
But number two, assuming I hadbeen, I'm not so sure Well, I'm
almost convinced that yourreturns would not have been as
good as they were over those 20plus years, simply because you
had a good chunk of your moneyin Apple stock.
And it's no secret that Applestock has done incredibly well
(03:12):
over the past 20 plus years.
So, as we get to thinking aboutthis, or having this
conversation is bringing us aninteresting points of given your
specific situation whether it'swith 401ks or Roth accounts or
brokerage accounts or stockcompensation or just individual
stocks what should that looklike?
How much is okay to have anindividual stock?
How much can contribute to yourplan versus at what point does
(03:35):
it potentially detract from yourplan and even become dangerous?
And here's the thing aboutindividual stock.
When people come to me and say,james, how much stock is okay
to have in a plan, there's thissense of we want a precise
answer, as if it depends uponthe specific stock.
So, for example, if it's anIKIE stock, you can hold this
percent, but if it's Tesla stock, that percent, or whatever the
(03:56):
case might be, because thethinking is oh, this company
stable, this company paysdividends, this company has been
around 100 plus years versusthat company.
Well, that company is kind of awild card and maybe it goes off
and goes crazy, but maybe itgoes out of business.
And, yes, there is some smalldegree of truth in that.
But the reality is, all stocksare risky.
You can't point to a singlestock and say there is no risk
(04:19):
in this company.
Yes, you can point to somecompanies and say, hey, this
company's probably going to bearound for another 30, 40, 50
years.
That could be the case,no-transcript, and the company
still dramatically underperformsthe market.
So the first thing to recognizeis it does not matter the
specific stock you're looking at.
Every single individual stockcarries a significant amount of
(04:39):
risk in it.
That's the nature of investingin equity in companies and
stocks.
Another thing to note before wedive into the specifics here and
this is stating the obvious,but I think sometimes the
obvious needs to be stated,otherwise we can unintentionally
start to make wrong assumptionsabout stock returns.
But this answer would obviouslybe very different if we knew
(04:59):
exactly which stocks were goingto outperform.
For example, in Monica's case,she held a lot of Apple because
she worked at Apple for a longtime.
That turned out to be the rightdecision.
So if 20 years ago I could havegone back in time and known
exactly what was going to happenwith Apple, I would say do not
dare diversify the stock.
This stock is going to beincredible.
You should keep it in the sameway.
(05:21):
With the benefit of hindsight, Iknow what the winning lottery
numbers were.
So if I had gone back to theperson who bought the winning
lottery ticket, I would havesaid absolutely, buy that ticket
.
I know, because of the benefitof hindsight, that this is going
to be a winner.
However, today, looking forward, I have no idea what the next
(05:41):
lottery numbers are going to be.
So if you came to me and said,james, should I buy a lottery
ticket, I would say absolutelynot.
That's not a wise use of yourmoney because I don't know the
future, but I do know the oddsof you picking the winning
lottery ticket are very small.
So when we're looking atindividual stocks and I know
this is stating the obvious youmight be saying James, get on
with it.
But it's so important becausewhen it's our company we're
(06:03):
investing in, or the companythat we work for or has a long
track record of superior returns, it's very easy to fall into
the trap of thinking that'sgoing to continue.
Well, if that was going tocontinue if Apple stock, for
example, is going to do over thenext 20 years Apple stocked it
over the last 20 years I wouldsay there's no reason to own any
other investment in yourportfolio other than that.
(06:24):
Obviously a disclaimer.
That's not a recommendation.
This is just an illustration.
But if that was the case, and itwas that easy, diversification
is kind of dumb.
Why would we accept lowerreturns?
Well, we accept market returnsbecause we don't know what the
return of an individual stock isgoing to be and more on this
later.
The average return of theaverage individual stock is
(06:46):
actually less than the averagereturn of the market as a whole.
So if Monique, for example,hadn't worked for Apple for the
last 20 years, but she hadworked for the company that
Apple displaced Blackberry, herfinancial situation would be
wildly different, becauseBlackberry stock had the
opposite experience of Applestock.
So in retrospect it seemsobvious which stocks were going
(07:07):
to be the winners.
But going forward and lookingforward, it's impossible to know
over the next 30, 40, 50 yearswhat is going to do best.
So, as we're having thisconversation, I don't care if
it's Apple stock, that you haveAT&T stock, visa stock or
something entirely different.
It depends less on theindividual stock and more on
your specific situation, becausein some cases the right
(07:30):
percentage to own an individualstock is exactly 0% and if you
own any, it starts topotentially be harmful to your
situation versus in others, youcould make a case for having the
majority of your portfolio inan individual stock and still be
okay.
So what we need to look at iswhat are the conditions that
would make owning individualstock acceptable or unacceptable
(07:52):
, and to what extent would it beacceptable given the overall
portfolio that you have and thegoals you're trying to do?
So here's an example of howthis could be the case.
Let's assume that you have twopeople.
Now both of these people cometo you and they say I want
$50,000 per year for myportfolio.
How much can I have anindividual stock?
Well, you might be tempted tosay well, they're the same
(08:15):
person, but just duplicated sameage, let's say same needs from
their portfolio.
Should they therefore have thesame capacity to own individual
stock?
Well, not necessarily.
It all comes down to theirportfolio value.
Let's assume person number onehas a million dollars in their
portfolio.
In person number two has fivemillion dollars in their
(08:37):
portfolio.
Well, what you need to do isyou need to work backwards.
We know that both of theseindividuals need $50,000 per
year from their portfolio.
How much portfolio or whatportfolio size is required to
make that happen?
Well, this, of course, is whereyou want to understand.
What withdrawal rate are yougoing to use and how are you
going to diversify yourportfolio in a way to support
(08:58):
that?
But let's assume that yourportfolio, based on the way it's
diversified in your age andtime horizon, it can support a
5% per year withdrawal rate.
Okay, to get $50,000 per year,you would need $1 million,
because 5% of a million dollarsis at $50,000 per year.
So how much can person oneafford to have in stocks?
(09:19):
I'd argue 0%, or at least very,very little.
Because any individual stockhas the potential to go the way
of Blackberry, to go the way ofSilicon Valley Bank, to go the
way of Enron, to go the way ofmany of these companies that
have had disastrous returns oreven outright gone bankrupt.
(09:39):
So if you take a million dollarportfolio and put 10% of it in
an individual stock and thatindividual stock performs
horribly, the implications ofthat are you really only have
900,000 left, or 900,000 pluswhatever small amount is left in
that stock.
The implications of that areyour spending has to change.
So if it's an unacceptableoutcome for you to have to
(10:02):
reduce your spending down from50,000 per year, then it's
unacceptable, in my opinion, tohold any degree of risk in there
to that, to hold any degree ofrisk that your spending would
have to be cut because of thebad performance of a single
company.
Now, there are sometechnicalities around this.
So I did say, hey, I don't carewhat stock you own, all stocks
(10:24):
carry an inherent degree of risk.
There is truth to that.
But there's also truth to this.
If you look at the market as awhole, so the S&P 500, in this
case, the largest 505 or socompanies in the US Well, if you
look at Apple, which is thelargest of the holdings, so the
S&P 500 is what's called amarket cap weighted, so the
(10:44):
largest of those companies isgoing to represent a greater
percentage of the S&P 500 thanis the smallest of the companies
.
Well, apple, as of thisrecording, is the largest
company.
It makes up 7.5% of the S&P 500.
That's a pretty significantallocation of the S&P 500 to one
single company and that's justdue to, of course, apple's large
(11:04):
size Versus.
Today, as of this recording,the 500th company in the S&P 500
is Lincoln National Corporation.
Lincoln National makes up 0.01%of the S&P 500.
So you could absolutely make theargument that, look, if I'm
owning one of the top five ortop 10 or top 15, whatever
you're looking at companies inthe S&P, could I get away with
(11:27):
owning more of that?
You could get away with thatfrom the standpoint of it's not
deviating that significantlyfrom the rest of the market.
If I own 5% in Apple and havethe rest of my portfolio
offsetting that, that might benot too different than what
Apple makes up in the market asa whole, versus if I own 5% of
(11:48):
my portfolio in Lincoln NationalCorporation.
This is neither an endorsementfor or against this specific
stock.
But now all of a sudden, I'msignificantly skewed in terms of
my weighting to each of thecompanies or each of the stocks
that whatever index or fund orasset class I'm trying to hold
represents.
So you can make somedistinction within that.
(12:08):
But in general, I would look atit from the standpoint of if I
have a million dollars in thisexample and I can't afford to
lose any of it via an individualstock going out of business,
well, I need that full milliondollars to be diversified.
Hey, everyone, it's me again forthe Disclaimer.
Please be smart about this.
Before doing anything, pleasebe sure to consult with your tax
planner or financial planner.
(12:29):
Nothing in this podcast shouldbe construed as investment, tax,
legal or other financial advice.
It is for informationalpurposes only.
Now let's take a look atindividual number two.
As we've already established,individual number two also needs
$50,000 per year.
We can therefore infer theindividual number two also needs
at least a million dollars,diversified in such a way that
(12:53):
it can support that $50,000 peryear.
However, individual number twodoesn't have $1 million to make
this happen.
Individual number two has $5million to make this happen.
So, to keep it super simple,you could say $1 million of that
, $5 million needs to bediversified because that's the
portion of the portfolio that'sgoing to cover your needs.
(13:14):
If you want to take a simpleneeds analysis perspective, well
, the excess $4 million underthis perspective is technically
that it's excess.
So how much of it could youafford to invest in a single
stock?
Well, technically, I'd argueyou could afford to invest 100%
of it into an individual stock,because you always have to look
at worst case scenario.
(13:34):
Assume that $4 million wasinvested into Silicon Valley
Bank.
Well, bummer, you just lost 80%of your entire portfolio.
You lost 100% of your stock,but that stock represented 80%
of your overall portfolio.
But you're still technicallyokay from the standpoint that
you have $50,000 per year thatyou can still create from your
(13:55):
remaining portfolio balance.
Now, just because you're okayfinancially does not mean that,
in reality, you would be okay.
You would be pretty darn upsetif your $5 million portfolio
turned to $1 million over a veryshort period of time because
you invested 80% of your stockinto a single stock that went
bankrupt.
Now let's take a big step back.
Are the odds high that you'regoing to put all your money into
(14:19):
an individual stock that'sgoing to go bankrupt?
Statistically speaking, no, theodds are not high.
However, that is a risk, anddoesn't even need to be a full
bankruptcy for this to derailyour plan.
If you're dependent upon theindividual stock, even just
underperformance can bedisastrous, depending upon how
you're structuring this.
But the other side to this isthe emotional side.
(14:40):
As we just established, if youdo a simple needs analysis and
you have $5 million in thisportfolio, you only need to
diversify $1 million, whichmeans, technically, you could
allocate the remaining $4million to an individual stock.
It doesn't mean it's the wisest, but technically you could
afford to financially.
What you have to ask yourself,though, is emotionally, are you
actually going to be okay Evenif the stock's not going down?
(15:04):
Are you going to be okay.
Most people just think about itfrom the standpoint of okay, if
I invest in an individual stockand the individual stock is
going down quite a bit, that'swhen it's causing some emotional
distress.
But it's also the opposite.
Now, when stocks are going up,yes, that's bringing a lot of I
won't call it joy, but maybe abig degree of dopamine is being
(15:25):
released and it's creating someextreme excitement.
But even that can becomeall-consuming and it can become
almost as addictive behavior as,as you have a lot of money in
an individual stock, those dailyswings, even if they're
trending upward, can start totake a toll on your emotional
health.
I've seen this time and timeagain.
So don't just think of it fromthe standpoint of owning an
(15:46):
individual stock is only bad.
In the case of the stock doesterribly.
It can also be harmfulemotionally, even if it's going
up, because any stock is goingto deviate significantly even on
the way up, and it can becomethis all-consuming thing if
we're not careful about how wepersonally are going to receive
whatever's happening with thatstock.
(16:06):
So a couple more things I wantto touch on that I think are
important with regards to thisdiscussion.
One is just a basic frameworkto follow.
If you're asking yourself thisquestion, here's what I would
start with.
Number one do the needsanalysis.
Understand what level of incomeyou need your portfolio to
support.
Now, this could be basic thingslike basic living expenses and
retirement.
This could be things like homedown payment.
(16:28):
This could be things likesending kids to college.
But number one start withwhat's needed from my portfolio
no-transcript Determining theportfolio size needed to make
that happen.
So in our very basic example, ifwe go back to individual one
and two, maybe I should havegiven them names, but just
individual one and two.
Step one for them understandinghow much they need, that would
(16:49):
be the $50,000 in their case,they would go through an
exercise to say, okay, I need$50,000 per year.
Number two in determining theportfolio size needed to make
that happen, both of theiranswers would have been $1
million and though they both haddifferent portfolio sizes, they
both would have had the sameportfolio size needed to make
their income needs happen.
(17:10):
And then step number three.
That's where I would saydetermine what you want to do
with the excess and why.
So for this step, individualnumber one didn't really have
any excess.
They would really need to makesure their full million dollars
was fully diversified to be ableto support their income needs.
Individual number two however,they did have excess.
(17:30):
They had a $4 million of excess.
Now, just because it's quoteunquote excess doesn't mean that
you should be flippant orunwise with it.
You should absolutely stillseek to do the best you can with
that, whether you technicallyneed it or not.
But that's where you have moreleeway.
If there is an individual stockthat you want to hold or if
there are some unique things youwant to do with it, that's the
(17:52):
amount that you can afford to dosomething with, because even if
it doesn't go according to plan, it's not as if your financial
strategy or your personalsituation is in serious jeopardy
.
So, as we're talking about this, some of you might be thinking
do people really wrestle withthis?
Do people really own a wholebunch of individual stock?
Yes and no.
Where I see this most commonlyis with executives or people who
(18:14):
have some type of stockcompensation plan.
So you have your base salaryand your bonus and you're using
that to put money into 401Ks andto save and to do your
diversifying.
But you also, depending uponyour position with the company,
might have some pretty seriousequity in your company.
So this is what a lot of peoplewant to know, whether they have
restricted stock units.
So RSUs or stock options orincentive stock options or an
(18:37):
employee stock purchase plan.
There's all these types ofdifferent stock compensation and
the question always comes downto how much should I keep in
that plan versus how much shouldI diversify?
So this is where I see thismost commonly and for a lot of
people it can be kind of fun toown stock in your own company.
It can be very fun.
(18:58):
But also keep in mind thecounterpoint to that.
As I mentioned, when you have alot of your net worth tied up
in one individual company, theswings can take a toll on your
emotional health, even if thoseswings on average are trending
upward.
So be cognizant of you and yourown personality of what makes
most sense.
But I have many clients who areexecutives at different
(19:20):
corporations and they do have afairly significant portion of
their net worth in a singlecompany stock and now some of
these stocks have outperformedthe rest of the market.
They've been very glad they'vedone that.
Other clients their stocks haveunderperformed the market.
However, in all situations whatwe did first and foremost is we
went through that basicframework.
What do we need from ourportfolio in the future?
(19:43):
Step one.
Step two what portfolio size dowe need to be able to
accomplish that?
Once we've done that, then stepthree is that what do we do
with a quote unquote excess,which in many cases not always,
but in many cases is what thatstock compensation represents?
So assuming you have your 401ksand brokerage accounts and
(20:03):
other assets positioned in a waythat even if that stock went to
zero or significantlyunderperformed, you would still
be okay, then there's notnecessarily a limit on how much
you can own, and do so safely,in an individual stock.
That's really not a guaranteethat being diversified elsewhere
is somehow going to cause yourstock that you own to
miraculously outperform.
But what it is saying is, evenif that stock doesn't do well,
(20:27):
you're going to be in a positionto where you can buffer it.
You can absorb that and nothave it impact your personal
situation.
Now last part here a lot ofpeople ask me James, what about
you?
What do you personally do?
Now?
Number one just because I dosomething doesn't necessarily
mean it's the best thing in theworld to do.
But number two I think theimportant thing to know and I
tell us to my clients, is I eatmy own cooking.
(20:48):
I actually don't own anyindividual stocks Now.
I have before, but I've sincesold them.
But I ask myself threequestions if I'm going to invest
my money somewhere, whetherit's a stock or anything else,
just a basic framework.
Number one is do I enjoy thisNow picking individual stocks?
Yeah, it's kind of fun, I wouldsay I enjoyed it.
Now, do I enjoy it more thanwork?
(21:11):
Or do I enjoy it more than theother things I like to do
outside of work, with friends orwith family?
No, I don't enjoy it more thanthat.
So when I'm looking at this, isthis where I want to spend my
time?
Or do I get more satisfactionout of the work I do with
clients and the things I do withfriends and family elsewhere?
Well, it's the latter.
So number one in my frameworkof it's not something I enjoy
(21:31):
doing more than the otheraspects of my life.
Now, that's not abe-all-and-all, because there's
some things I don't enjoy doing,but they're very meaningful or
they're very necessary to thefulfillment of my goals, but
that's at least number one.
Do I enjoy it more than theother things I spend time on?
And for me the answer is no.
The second question you have toask is is this where my time is
(21:52):
best spent?
What's the return on investmentof my time?
So, as you're looking atpicking individual stocks, what
time is that consuming, bothfinancially?
So to me, financially, is mytime better spent picking
individual stocks from mepersonally, my personal
portfolio, or is it growing abusiness and improving a
business and working withclients?
I'd argue, I'd just argue, I'dsay definitively that my
(22:16):
greatest return on investment isworking within the business and
working on the things that Ican control.
And then, even relationally,where do I want to invest my
time?
The return on investment I getspending time with my wife or my
daughter or my friends,significantly greater in my mind
than any potential return oninvestment with stocks.
And then number three brings usall together, because some
people might be saying well,James, if you could do better
(22:38):
because you enjoyed it or youdid enjoy spending time there,
wouldn't you do it?
Well, if I enjoyed it and if itwas where my time was best
spent and I could outperform,then absolutely would be a
no-brainer.
But the third point is am Iokay with underperforming?
If I'm going to own individualstocks, I have to be okay with
underperforming.
Jp Morgan put out a great studyand what it showed is that if
(23:01):
you look at the Wilshire 3000,which is pretty much I think
it's 98 or 99% of all thepublicly traded stocks in the
United States going back to 1970, two thirds of those stocks in
the Wilshire 3000 underperformedthe Wilshire 3000 itself.
Well, how could that be?
But what happens with stockreturns is there's a handful
(23:23):
call it 5%, maybe even up to 10%of individual stocks whose
performance is so good that itpulls the rest of the market
along with it.
However, what that means is theother 90 to 95% of stocks
aren't going to do as well andin fact, 67% or two thirds of
stocks are actually going tounderperform the market as a
(23:44):
whole.
So when you're picking anindividual stock, understand the
odds are against you.
The odds are against you thatyou actually outperform the rest
of the market in doing so.
Now you can say, well, it'sobvious what stocks are going to
outperform the market, butyou're only saying that because
of what's happened over the lastfive, 10, 15 plus years.
We can look back now on Teslaor on Apple or on Microsoft or
(24:07):
on Nvidia and say, oh my gosh.
Of course this was going tohappen, but that wasn't the case
10 years ago, 15 years ago.
20 years ago, some of thosecompanies weren't even around at
that time.
Now look at this the bestperforming stocks of the 2000s.
Who would have guessed thatDomino's would have been one of
the best performing stocks?
Or Monster Energy?
Or Netflix?
Go back to the beginning of2000,.
These weren't the companiesthat were top of mind.
(24:30):
So the next 20 years, 30 years,what are the odds of you
picking stocks that willoutperform the rest of the
market?
Well, that would say pretty low, and not just you, not just me,
but even Wall Street.
If you look at people on WallStreet and say, hey, what are
the best performing stocks goingto be, or where's the S&P 500
going to end up this year?
Almost always they are wrong.
(24:50):
The good news is, you don't needto be right to have success.
You just need to make sureyou're properly allocated to the
entirety of the market, ormaybe not the entirety of the
market, but the certain aspectsof the market that you
specifically need to capturewhen you're looking at your
financial plan.
So what's the real reason?
I diversified the biggestreason?
I want to perform the best Ipossibly can.
(25:13):
I want to grow my money thebest I possibly can.
And too often people look atdiversification and say, okay,
that's what you do, if you'reokay with accepting mediocre
returns.
No, that's what you do if youwant to maximize returns.
If you want a greater chance ofunderperforming, then that's
where you pick individual stocksand again a good number of
(25:34):
people will outperform themarket.
But I would argue it's by sheerluck.
Most of the time.
You have as I mentioned beforeyou have to be right a two out
of three chance you'llunderperform the market by
picking an individual stock.
Then you will outperform themarket.
So that's my basic framework.
And then, even when I'minvesting, I'm not just buying
one single index fund.
I'm making sure I'm broadlydiversified in picking the type
(25:56):
of asset classes that are goingto deliver at least,
historically speaking, havedelivered the highest potential
return for a given level of riskI'm comfortable with, based
upon different investment goals.
So that's me, that's myframework, not saying that
everyone has to do it, but I dothink it's important that people
understand what I'm saying.
Something it's not somethingthat this is what you should do,
but I'm going to do thisbecause here's where the
(26:17):
superior returns are.
So that's a basic framework forhow to think about owning
individual stocks.
Are individual stocks bad?
No, can you be just fine evenif a significant part of your
portfolio is an individualstocks?
Yes, heck, you could even belike Monica, who did incredibly
well because her individualstock happened to be one of the
best performing companies of alltime.
However, there's no guaranteegoing forward of that company
(26:41):
continuing to perform that way,or any company performing a
specific way.
So have a plan, understand whatyour portfolio needs are,
understand what portion of yourportfolio needs to be
diversified and understand whatyou want to do with the
remaining portion, both from afinancial standpoint and an
emotional standpoint, ofunderstanding what you'd be
comfortable with.
So I hope that is helpful.
(27:02):
Thank you, as always, forlistening.
If you have not already done so, be sure to leave a review.
Also, if you've not alreadydone so, please be sure to
subscribe to our YouTube channel.
It's called Root Financial.
You'll find this podcast.
You'll find other videos thatare released every single week
to make sure that you're gettingthe most out of life with your
money.
Thanks for listening and I'llsee you next time.
Thank you for listening toanother episode of the Ready for
(27:26):
Attignment podcast.
If you want to see how RootFinancial can help you implement
the techniques I discussed inthis podcast, then go to
RootFinancialPartnerscom andclick Start here, where you can
schedule a call to one of ouradvisors.
We work with clients all overthe country and we love the
opportunity to speak with youabout your goals and how we
might be able to help.
And please remember, nothing wediscuss in this podcast is
(27:47):
intended to serve as advice.
You should always consult afinancial, legal or tax
professional who's familiar withyour unique circumstances
before making any financialdecisions.
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