The Best Way to Set Your Portfolio for a Profitable 2018

We want to help you ensure that 2018 is a successful year for investing. Maybe your most profitable yet…

That means not just picking the "right" stocks, but balancing investments appropriately across your portfolio.

We'll be here to help point you to the best investments as opportunities appear throughout the year. For now, here's an excellent place to start…

Rebalancing Your Portfolio: The 50-40-10 Model

A proper asset allocation sets you up to grow your money while balancing risk.

Money Morning Chief Investment Strategist Keith Fitz-Gerald recommends the 50-40-10 model. That's 50% in foundational positions, 40% in solid growth stocks, and 10% in more speculative plays.

Using this model, Keith says you can steer yourself away from common risks and put yourself in a position for big windfall profits that pay off year after year.

All you need – besides some money to get started – is discipline.

The 50-40-10 model is not "buy and hold" and it's not "set it and forget it." Once you've got your allocations in order, you will continue to rebalance them every year. Price changes over time throw your portfolio allocation out of whack. Rebalancing puts you back on the right track.

Rebalancing also means you sometimes have to sell some of your winners. When your growth stocks have a fantastic year, for example, they might end up accounting for 50% or even more of your portfolio. If that's the case, you'll sell some of those shares and buy more bonds or speculative picks to get back to 50-40-10.

The temptation is to let the winners ride. After all, why sell your best performers? But as Keith points out, if you don't rebalance as you go, "you're simply taking on more risk."

You're not selling every share of your winning stocks – just enough to get your allocation back in line.

Does that mean you buy your "losers"? To some degree, yes.

When you know the company and its shares are healthy and in a position to succeed, any dip in price should be merely prelude to a greater rise in the near future. So selling your biggest gainers and buying the ones that haven't gained as much is actually a great way to profit year after year.

"You are effectively 'forcing' yourself to buy low and sell high," Keith says, "using proven logic – not emotion."

You might toss some big losers, especially on the speculative side. That's why Keith recommends using trailing stops to limit losses. A trailing stop sets a percentage limit – we typically recommend 25% – below a stock's highest price. If the price falls below that point, the trailing stop sells your shares.

Again, you take emotion out of the equation by setting the percentage early and sticking to it.

Now let's take a look at how to build your portfolio…

Base Builders (50% of Your Portfolio)

Stephen Mack

About the Author

Browse Stephen's articles | View Stephen's research services

Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.

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