As I said yesterday, taking a big loss on one investment idea can wipe out a pretty good investing year. Portfolio Allocation is really a two pronged attack. First, it is important to be invested in a wide range of assets; stocks, bonds, real estate, precious metals, commodities and cash. You can further break up the stocks and bonds into various catagories. Stocks can be large capitalizations, small caps, international, utilities, etc. Bonds can be corporate, state, municipal and federal government, and so called ‘junk bonds’. Stocks can also be allocated by industries to further diversify. It is important to remember that all assets don’t rise and fall in value together and to devisify by different catagoriesand industries will lower your portfolio’s risk of loss.Next you want to be sure to not put all your eggs in one basket. Make sure you don’t put more than 4 – 5% of you portfolio in one idea. DIfferent stocks in the same asset catagory or industry can act differently. So keeping no more than 1/20 of your portfolio in any one idea will not hurt as much if that idea turns over and dies.Tomorrow I will talk about when you should sell an [...]
Brian’s Financial Musings
Let’s talk a little investing today. I used to have my broker license years ago and learned enough about investing to find out two things – I can’t pick stocks and fell in love with my picks. I still manage my own investments, but subscribe to an investment service to pick my stocks. One thing I did learn from them is when to sell a stock. This may be the hardest thing to learn in investing, but if you don’t learn it, you can wipe out any gains you make overnight. I know I have mentioned this before, but you need to use trailing stop losses and not put more than 5% of your investment money in any one idea. Tomorrow I will go into portfolio allocation and the next day, trailing stop losses.
Brian’s Tax Musings
When can you deduct attorney’s fees related to a divorce? The only deductible expenses have to do with spousal support battles and tax advice given to you by the attorney. Most other items are personal expenses and not deductible.These legal fees can only be deducted on Schedule A as a miscellaneous itemized deduction subject to 2% of adjusted gross income. So you may not get the deduction even if it is ‘deductible.’