Question:
How do you determine the percentage of your portfolio a stock makes up? Is it the number of stocks, the price of the stock, the amount compared to sector, or some other variable?
Answer:
It’s hard to tell exactly what the question is here, so we will answer both possibilities. If you are asking how to do the math, take the total dollar amount of the holding and divide it by the total dollar amount of the portfolio. That will give you the percentage a stock makes up.
What we assume to be the more likely question, “How do we decide what percentage of the portfolio should be held in a position?” At Henssler, we look at several things. We first look at the portfolio’s benchmark’s holding. We often look at whether we want to be over- or underweight in a stock relative to the S&P 500. It is harder to underweight a fast-growing stock because, as it grows, it can become a larger percentage of your portfolio, relative to the benchmark. Generally, an investor’s portfolio will have fewer stocks than a benchmark like the S&P 500, which has 500 holdings.
We also hold companies that are not in the S&P 500. In those instances, we often consider the sector’s weight in the benchmark. If we are looking to underweight a sector, we may not hold large positions. We currently do not hold any telecommunications positions.
We also look at the total percentage currently held. We generally avoid position greater than 5% of a portfolio. However, we have held some positions at a weight greater than 5% when they are diversified, meaning not heavily reliant on the actions of one company. For example, we might overweight a diversified exchange-traded fund that consists of many underlying stocks.
At Henssler Financial we believe you should Live Ready, and that includes understanding your portfolio’s construction. If you have questions regarding your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
