Factors That Should Influence Your Investments

If you asked a thousand different people about the key factors that should drive their investment choices, you’re bound to get a thousand different answers.

Some, for example, might be inclined to argue that U.S. stocks have increased for eight consecutive years and there’s no reason to make any portfolio changes because stock prices are still rising.

On the other hand, others may have a completely opposite view, arguing that depressed volatility (VXX) coupled with rising stock prices, spells trouble. As a result, investors with this view may feel motivated to make radical changes inside their investment portfolio, perhaps selling all of their equity positions (DIA) and loading up on cash.

What are the crucial factors that should influence your investment decisions?

Rather than viewing your investments as one big bucket, I suggest a better approach that I believe reduces risk without hampering growth. My approach is to compartmentalize assets by dividing them into three main buckets: 1) a core, 2) a non-core, and 3) a margin of safety. Before making any asset allocation or diversification decisions, priority number one is to first determine what percentage or dollar value of your money should be put into each of these three buckets.

It’s important to remember that each of these three buckets – the core, non-core, and margin of safety – serves a deliberately different purpose from the next. Also, each bucket is purposely designed to complement the others by eliminating investment strategies that overlap.

Before we can answer the question of what factors should be influencing your investment choices, you must first understand that each of these three buckets – the core, non-core, and margin of safety – has a different set of deciding factors that will impact your portfolio’s overall design.

Your Core
The first bucket within your investment portfolio is your core. And as your core, this bucket is your portfolio’s foundation and should never represent less than 50% of your total assets. Why? Because if you’re allocating anything less than 50% of your total portfolio to your core bucket, you have inadvertently made the other two buckets your core.

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Disclosure: None

Disclaimer: Ron DeLegge has analyzed and graded more than $125 million with his Portfolio ...

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