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Spring Cleaning: A Clean-Cut Portfolio

What can I do with the stocks I'm stuck with?
It is not uncommon to hear investors stuck with some penny stocks, when initially, their intention was just to make a quick buck from the hot stock. If you have many of such stocks in the portfolio, work towards spring cleaning your portfolio. If the stock that you hold has strong fundamentals, there may be some hope in the revival of the prices. However, if you hold a stock without strong fundamentals, then the chances of a revival will be much lower, you will need patience for sudden takeovers, sudden trading activities to happen etc.
As a guideline, you can refer to this Trading Restriction List. If a large portion of your portfolio are stocks in this list, consider doing a switch by consolidating the funds from these stocks into 1 or 2 fundamentally stronger stocks. If you have a portfolio consisting of almost 100% of penny stocks (and especially if you have bulk of your savings in stocks, or heavily leveraged on margin), make a commitment to reduce your risk by 50% or more.
What is the ideal number of stocks to have in a portfolio?
There is no single correct answer to this question. However, one definite concept is, never put all your eggs into one basket. Rarely, a strategy of risking all and "making-it-big-once" works. A portfolio of 10 stocks, particularly those of various sectors or industries, is much less risky than a portfolio of 2. A reasonable range will be anywhere between 5 to 20 stocks, for easy and quick monitoring. After looking at your "pet" stocks regularly over a long period, you will find it much easier to research, select and maintain awareness of these stocks.
How much risk should I take?
Risk always works hand-in-hand with return. First, determine your own appetite for risk. As Frank Armstrong says on Forbes, "sleeping well at night is a legitimate financial objective". Although this idea may sound cliché, this ancient idea truly works. Use it as a gauge to determine how much risk you can stomach.
Read more about Building Your Optimum Portfolio here.
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