The ‘trick’ to trading is that your portfolio isn’t susceptible to collapse if one industry goes down. Portfolio diversification is a major key to win enough so that you can build a passive income stream.
Large Cap: 30%
Market ETFs: 30%
Mid or Small: 10%
Foreign: 10%
Options: 10%
Cash: 10%
Large Cap
Large cap stocks are companies that have a net worth of 10 billion or more dollars. These are often the most popular stocks due to their sheer size. These are the stocks that dominate headlines and the companies that you see everywhere you go. Apple, Google, Bank of America, etc. These companies tend to be more liquid and less volatile which is why they provide a base for my portfolio.
Market ETFs
Market ETFs are increasingly helpful as indicators of volatility, futures, as well as general market outlook. By following the moving averages and resistance/support levels of these holdings, investors can better understand the market outlook which translates to better trades.
Mid and Small Cap
Personally, I’m increasingly excited about marijuana as an industry, but most investors are waiting until the legal area is cleaned up. This is the same with most startups. Any company that is considered the ‘new kid on the block’ doesn’t have the financial, legal, or usually institutional backing that facilitates growth. That doesn’t necessarily mean that the investment is bad, it just means that you are investing in a riskier position
Foreign
The logic here is if the NYSE existed in the 1830s there would be very clear and evident increases in the manufacturing and industrial sectors of the economy. While neither you or I were alive during this time, we can see the same catalysts happening in other countries. Brazil, Russia, India, and China (The BRIC) is the go-to arena for emerging markets.
Options
Options are advanced trading techniques, but they can be used very well to offset risk and volatility during earnings or enhance gains during a long period of constant returns (negative or positive).
