I find that many investors place a lot of focus on weighted allocation. When you have a portfolio of 50, 100, and sometimes 500 stocks or more, then yes, weighted allocation should be on your mind.
If you have a portfolio of 10-15 stocks, your weighted allocation strategy is simplified.
I have three specific ways to handle weighted allocation.
1) 50% Hold in Cash
Every month I send money from my bank account to my broker and I keep 50% of that money in cash. Yes, cash. I set that money aside and I wait for moments in time when the market drops to buy more On Sale stocks. This strategy, taught by Phil Town, is known as “Stockpiling.” We’ll talk more about stockpiling with another investing tip later.
Pullbacks in the market and crashes won’t happen often. When they do, you need to be prepared with extra cash on hand. If you don’t know Phil Town, he turned $1,000 into $1,000,000 in 5 years and he did this by simply buying great companies as the market dropped. In other words, he did this by Stockpiling.
2) 50% DCA (Dollar Cost Average)
After I send money to my broker, I take the other 50% of the cash and I buy more of the same On Sale stocks I already own. In most cases, I don’t buy new stocks, I keep buying the shares of stocks I already own.
3) Focused Allocation
In some cases, I’ll check the news on each stock to see if there is a merger, acquisition, new product, new enterprise customer, etc. In other words, if I see any major positive news, I will allocate more to that specific stock. For example, if I learn that one of my stocks is buying another On Sale stock, I will have more confidence in buying that stock!
That’s it. That’s my strategy for weighted allocation.
Important note: Most brokers will allow you to set up an automatic deposit where your bank will transfer money to your broker every month. We recommend you set up an automatic deposit.