Risk

[T1985]

What percent would you guys say is ok to invest in very speculative stock? I am 100% invested in stock (0% bond obviously), but of that 100% in stock what percent of that should be in speculative/risky stocks? For someone my age(25-30) I think 8-15% is a good range. What do you guys think? (This can be IRA or taxable account)

[feh]

The answer for me is 0%. Our portfolio is all index funds.

For the vast majority of people, stock picking is a loser's game.

[Nika]

I do invest some of our portfolio in single stocks, sometimes intending to speculate. But, I've learned to only speculate with stocks that I am willing to hold long term and believe would eventually recover if things go south.

I now base my criteria on knowing the product or the industry. Only after I'm convinced the product is above their competition I will bother to look at company's financials.

So I am holding stocks like Apple, Marriott, Facebook, Qualcomm, Fairway Market(that one is massively risky, but I like their stores the best so I think they have potential).

So, if I can speculate, great. If not, I will hold the stock.

I'm not sure what your definition of "speculative" is. Do you just mean "volitile" or do you mean "pump and dump" schemes where they advertize how great some unknown company is?

[BuckyBadger]

What percent? Zero percent.

I think it should all be in index funds, divided in some way between Total US Stock and Total International Stock funds.

Being 100% in stocks is risky enough. Why on earth would you want to make it intentionally more risky by specifically investing in even riskier individual stocks?

[T1985]

I think I worded it wrong. What I mean by 100% stock is I don't do bonds, CDs, things like that. I use a company 401K and there are very few options. I know in an IRA you can select mutual, index funds, bond funds, etc. All of my current funds are tied to different "funds" that hold stocks. I was just wondering how many people ever pick very volatile individual stocks . Interesting to hear different opinions though

[Spiffster]

I dabble here and there in speculative stocks (speculative being a pretty loose term). Nothing more than I can afford lose of course.

[snafu]

In my opinion, Bond, CDs and similar savings instruments are extremely risky in the current economic environment. Bonds are best bought when interest rates are decreasing. Food, gas and medical costs are going up; interest rates for mortgages and car loans look like they are increasing. With both Government and Corporate Bond interest rates paying paltry sums, Bond holders are losing buying power. Corporate bonds issued by companies in hopes of avoiding failure add to the risk factor.

Younger people can manage higher risk as they have years and years of compounding in their favour but I presume you'll devote time to do your homework, understand what you are buying and the track record of the principals. Do you need a a full service broker or are you comfortable researching and making purchases via a discount brokerage? Newbies need to assess their risk tolerance and be prepared to lose money should worst case befall. You can't let that colour your view of investing going forward. I've looked at it like learning to ride a bike...I fell off a few times until I got it right! It helps to learn to read trend lines. My most important suggestion is to set a 'buy' price and 'sell' price. Personally, I set a 7% stop loss.

If other commitments limit your time, it's safer to contribute to a 'sleep at night' portfolio from a low cost provider like Vanguard Dollar Cost Average program. Once there is sufficient sums you can make changes to suit your circumstances

[JBinKC]

I see nothing wrong with speculation using a basket of 5 or more individual small cap stocks for 20-25% your portfolio if you are in your 20s provided you have done sufficient homework on the stock and you maintain your purchase within strict accounting valuation parameters. If your intention is to speculate by chasing momentum you will likely lose in the long run. Another thing is to be prepared for a learning curve.

I wouldn't have been in my financial position today had I not taken these calculated risks but I totally admit I have been lucky on the timing on both the cycle of the business and the stock.

The only qualm I have is perhaps the timing of this sudden urge. The stock bull market is getting old and tired with rich historical valuations .

[jpham540]

Most of my capital is in vanguard total stock market & vanguard total international stock market index funds. My asset allocation is 80% stock & 20% bond. I do have some individual stock in large cap that pays dividend. I’m trying to build up my dividend portfolio for a monthly passive income in the future. Everyone has different style of investing, as long as you’re comfortable and can sleep at night.

[Tabs]

This is just my opinion, but I think some speculation is OK. However, I would recommend some bond funds to balance out the speculation. For example, if you decide to use 10% for speculation, I would also allocate 10% into a decent bond fund.

Actually, at your age, you SHOULD have some bond fund. Depending on who you follow, it should be anywhere from 5% to 25%.

Is there a reason why you are avoiding bond funds in general? I know QE is causing the bond market to act a bit peculiar, but bond funds in general are a basket of them to try to balance out that nuttiness. In fact, my own bond fund has fared fairly well in the past couple of years.

I put the speculative stuff in my taxable accounts, because most of my speculations involve individual stocks that fluctuate in terms of paper worth.

[WealthInsights]

As a thumb rule,you can have 80% in stocks or stock related instruments, 10% in Debt Instruments (Bonds/Bank CDs) and 10% in cash for emergency requirements.

Now coming to your query, Yes you can have exposure in speculative stocks. However the same should be withing the overall limit of 80% in stocks.

In that stocks exposure, speculative stocks can be around 30% and not more than that. This is an ideal mix. 40% in growth oriented,30% in value stocks.

Hope this clarify your query.

Regards