Best way to redistribute and rebalance portfolio

[pedro_9k6k]

The question I have is one of those "good problems" questions. When I first started investing around five years ago I made sure to carefully balance my portfolio, never having one stock make up more than 5%-10% of my entire portfolio. However, over the years as I have cut the losers and added to the my winnings many of my initial investments, such as MVL, ATVI, EBAY, SYMC, YHOO, now make up a significantly large portion of my portfolio. I have very rarely sold my winners over the years but now that these stocks make up such a large percentage of my portfolio even the smallest movements can be quite painful (especially when it is a movement down!).

My question is how is the best way to redistribute and rebalance my portfolio? When I first started investing five years ago I had around 20 stocks with equal share. Now I currently have 5 stocks which make up nearly 80% of my portfolio. I am scared to sell my winners as I don't want to lose out on more gains, but at the same time I am frightening when one of these stocks moves down quickly (such as EBAY or SYMC recently). I want to make money please tell me how is that possible. How the decision has to be taken.

[aiki14]

THe simplest way to do this is to sell off the profits, if you are up 25%, sell 25% of the position. Pool the money and buy something new. If you are still a strong believer in the upside for a position sell half the profit and do the same.
Make the new positions in different sectors or industries for diversification and you're set. Keep a close watch on whats a particularly good sector and overweight it if you want to be more strategic.
Congrats on having a good problem and welcome to the forum.

[Rich]

Aiki,

Looking at his picks, doesn't it seem that he is involved in Technology on at least three of his picks? THus, not diversified, which creates a huge risk factor? I checked out each one and all but two are listed as a Tech sector. Or, are there diversifications within a sector itself which makes his picks diversified?

I have come to the belief that to diversify and have less profit/gains is better than extreme exposure, thats why I ask about the possiblity of different diversifications within a sector.... certainly Ebay is different than the software developer, but they are still listed as the tech sector..

Someone help me out here, please

Rich

[aiki14]

Aiki,

Looking at his picks, doesn't it seem that he is involved in Technology on at least three of his picks? THus, not diversified, which creates a huge risk factor? I checked out each one and all but two are listed as a Tech sector. Or, are there diversifications within a sector itself which makes his picks diversified?

I have come to the belief that to diversify and have less profit/gains is better than extreme exposure, thats why I ask about the possiblity of different diversifications within a sector.... certainly Ebay is different than the software developer, but they are still listed as the tech sector..

Someone help me out here, please

Rich

Rich, You have it correct, I was addressing the rebalancing without really looking at the stocks he is holding.
Take a look at the Efficient Frontier concept for a good way of analyzing risk versus reward in Portfolio Strategy.
I think you diversify on a sector level first and an industry level next as I think you have surmised, then across market cap and geographics and finally strategics.
Hope that helps

[optimus25]

Pedro,

It really depends on your goals and what type of account these securities are held in. How much of your assets is in this investment portfolio? I ask these questions because the nature of what you need to do will be dependent on your financial situation. For example, if this is in a retirement type of account, you should sell portions of your winners to diversify your retirement portfolio. The stocks you hold have been doing well but that necessarily won't be the case 100% of the time so it is important for you to diversify your holdings. Its important to create a strong foundation using diversification to keep all your eggs from breaking all at once.

[optimus25]

My question is how is the best way to redistribute and rebalance my portfolio? When I first started investing five years ago I had around 20 stocks with equal share. Now I currently have 5 stocks which make up nearly 80% of my portfolio. I am scared to sell my winners as I don't want to lose out on more gains, but at the same time I am frightening when one of these stocks moves down quickly (such as EBAY or SYMC recently). I want to make money please tell me how is that possible. How the decision has to be taken.

I use to have the same fear in regards to selling and losing out on gains...but trust me when I say this, a gain is not a gain, until you sell. In your case, I would create a spreadsheet looking at how big each position has gotten in relation to a % of the total portfolio. I would start the diversification process by selling portions of my winners and moving into an index fund or an active managed fund. I'd look into a large cap index fund, etf, or large cap-value/growth actively managed fund. By doing this, you won't miss out on the possible upside in the stock market and you also reduce the downside risks of your overall portfolio. Depending on your age, you should also look into adding a high yield bond investment. I like JFR but would wait to purchase when the security is trading at a bigger discount to NAV.