How much of your total capital do you risk?

[stevenmac2]

Hi All,

I am just curious as to how much do you risk on you open positions all at once? Do you follow a rule of staying 75% invested and 25% cash or 50% invested and 50% cash? I am just looking for some guidelines to follow. The highest I have ever invested into open positions is 48% of my capital. My problem? I think that I leave too much aside in cash that could be otherwise working. I would like to hear some feedback about how some of you handle this.

Thanks,
Steven

[Fredledingue]

A rule i recently set for myself is the higher the market, the more I sell and keep cash. The lower the market goes the more I buy.

There is no rule that says "You must keep 40% in cash". In fact it must be guided by the market trend: If the market tend to peak and could correct due to high valuation, if there is a (real) risk of recession or a crash, or on the contrary if the market is historicaly low or oversold.

I'd say the minimum of the minimum to keep in cash is 15% in absurdly oversold markets, 25% in normal time, 40% in high markets and 60% or more when you feel there is a real risk of correction.
Above 60% I consider that you are severly bearish on the whole market.

I also depends on what type of porftofio and on your strategies. If your portfolio is highly diversified and contains other safer securities, you can lower your cash minimum a bit.
If you bet on only 3 or 4 "deals of the year", all in the ame sector, then you better keep some money in a safe place.
If you track a few stocks that you know very well and trade the highs and the lows, then you will need 40~50% of cash all the time.
If you always seek the stocks best fit for a given moment in time and a given set of circumstances, shifting from one sector to another without being afraid to make radical changes in your portfolio, then the minimum is 20%.

It also depends on the gain or loss you do on your portofolio.
If you lose on many stocks, you better not to buy another stocks, but wait with your cash until you can average down 30, 50 or 90% cheaper.
Cash for the sake of it is useless but can be especialy useful for averaging down and scale trading.

HTH

[Journal Writer]

I keep separate accounts (CDs) for my cash/savings. My brokerage account is 100+% invested at almost all times. I read a lot and try to avoid the sectors I believe are in a slump or due for one (aka housing and banking for a while). My savings account is for safety and my brokerage account is for making money. I look for good stocks to sell options on in any market although some weeks I might not make a trade at all.
Diversify, but not to the point of watering down your gains from a good stock pick.
Right now I'm 198% invested, but then again I use options to lower my risk. So it's more accurate to say if all options I've sold were assigned I'd have 49% of my account on margin. All of my trades and account holdings are documented on my blog.
_________________
My Trader’s Journal

[Airelon]

I would agree with much of the above, and honestly, it depends on the current scene.

For example.

I tend to keep 17% free in cash in any account. That's lower than most professionals recommend, but then again, I've been at this a long time, so I'm well past my rookie years. But the cash kept in my accounts grow at about 4.47% So any investment I make should do better than that, just to do better than what it could make sitting in my account. That's important to keep in mind.

But at the same time? Right now the U.S. Dollar is worth jack-diddlie. And I like to travel a lot. Sometimes within the U.S., but many times I go outside of it. And when I do, I tend to spend a lot of my money. Currency exchanges do mean a lot to me, and I look for the best exchange. I'll be going to the Czech Republic again soon. The exchange there used to be great. But with a weak dollar? And with the Czech Republic joining the E.U., and moving to accepting the Euro? Plus a weak U.S. Dollar thanks to that Fed rate cut? I'm going to be hit.

So the logical thing to do, is to invest more than I usually would of my cash sitting in my account.

For a rook, 25% cash is preferrable. But as you gain experience over the years, you will find that that number will shrink.