09-18-2015, 02:07 AM
Rasec asked a good question in the "What did you buy today?" thread. Since we seem to have a bunch of newish investors joining us of late, I thought it would help to break the discussion out of that thread and put it here so it's easier to find.
I think the answer is for everyone to determine for themselves what a 'full position' is taking into account your age, where you are in your investing lifecycle, your resources and your goals.
I'm in my late-50s and hope to be able to scale back working for a living in less than a decade. My goal is to have sufficient dividend income to 'retire' and live off Social Security and my portfolio without dipping into the principal in my twilight years. My portfolio business plan is here. It may explain my goals better.
As an aside, do you have some kind of plan for your portfolio(s)? It doesn't have to be as formal as mine but I find it helps to write it down somewhere (even sticky notes attached to your monitor) as it's been shown that you get some mental reinforcement by the act of writing itself.
When I was transitioning to a dividend growth portfolio, I took my starting amount and calculated what the value of the portfolio was going to be in 3 years. I took into account the expected dividends, what I reasonably expected to be able to add to the portfolio and a reasonable growth of capital to come up with the final value.
My original goal was to have about 25 different companies in my portfolio spread across 9 of the 10 S&P GICS sectors. Since I expected to be close to fully invested, I divided 100% of the portfolio by 25 securities to get 4% of my 3 year projected portfolio value. That was my 'full position'. Over time, I realized I didn't necessarily want some companies to be 4% of my portfolio; cyclical basic materials was one, Canadian banks another (due more to currency fluctuations than my distrust of big banks). So, for the companies which I considered my core positions -- GIS/UL/ABT (pre-ABBV spinoff)/CVX/PEP/T/etc. -- I left at 4% of projected portfolio value and expanded the desired portfolio and adjusted the percentages down from there.
It's important to remember that you don't have to keep shuffling the portfolio to meet your desired position size. That just puts more money into your broker's pocket than your own. I usually let them grow on their own until they reach an oversized portion of 8-9% of the portfolio before thinking of trimming. This, of course, then makes your other positions go out of whack with your goals. I'm not so concerned with that. Afterall, position size, to me, is just a guideline. The goal for me is to have the bulk of the portfolio in large, blue chip companies that pay me a steadily increasing income over time.
When it gets to about a year before my projected portfolio date, I review my goals and come up with a new projected value 3 years hence. Without changing the percentages, sometimes I find that what was a 'full position' is not quite full any more due to growth of the portfolio as a whole. In that case, I might be looking to add to that position in the future.
I also look at the income percentages of each holding. I don't want to be dependent on one company to be providing 15% of my retirement income and then have them cut the dividend on me. Although I have no set position sizes on income, I do look for "reasonableness" and if something is too far out of range, adjust the value position size.
Lastly, your 'full position' size companies could change over time. I'm finding that as I get closer to retirement, I'm more interested in the higher yielding REITs and utilities becoming a bigger part of the portfolio. So, on the next revision, I'll probably be bumping up their percentages a bit and dropping the percentages for the lower yielding, higher growth companies while still trying to maintain the dividend growth rate at 150% of expected inflation listed in my portfolio business plan.
That's my long-winded explanation of position size from my point of view. Anyone else care to join in?
(09-08-2015, 12:21 PM)Rasec Wrote: What do you guys define as a full position vs a half position? Is there a rule or it's up to everyone to define?
I think the answer is for everyone to determine for themselves what a 'full position' is taking into account your age, where you are in your investing lifecycle, your resources and your goals.
I'm in my late-50s and hope to be able to scale back working for a living in less than a decade. My goal is to have sufficient dividend income to 'retire' and live off Social Security and my portfolio without dipping into the principal in my twilight years. My portfolio business plan is here. It may explain my goals better.
As an aside, do you have some kind of plan for your portfolio(s)? It doesn't have to be as formal as mine but I find it helps to write it down somewhere (even sticky notes attached to your monitor) as it's been shown that you get some mental reinforcement by the act of writing itself.
When I was transitioning to a dividend growth portfolio, I took my starting amount and calculated what the value of the portfolio was going to be in 3 years. I took into account the expected dividends, what I reasonably expected to be able to add to the portfolio and a reasonable growth of capital to come up with the final value.
My original goal was to have about 25 different companies in my portfolio spread across 9 of the 10 S&P GICS sectors. Since I expected to be close to fully invested, I divided 100% of the portfolio by 25 securities to get 4% of my 3 year projected portfolio value. That was my 'full position'. Over time, I realized I didn't necessarily want some companies to be 4% of my portfolio; cyclical basic materials was one, Canadian banks another (due more to currency fluctuations than my distrust of big banks). So, for the companies which I considered my core positions -- GIS/UL/ABT (pre-ABBV spinoff)/CVX/PEP/T/etc. -- I left at 4% of projected portfolio value and expanded the desired portfolio and adjusted the percentages down from there.
It's important to remember that you don't have to keep shuffling the portfolio to meet your desired position size. That just puts more money into your broker's pocket than your own. I usually let them grow on their own until they reach an oversized portion of 8-9% of the portfolio before thinking of trimming. This, of course, then makes your other positions go out of whack with your goals. I'm not so concerned with that. Afterall, position size, to me, is just a guideline. The goal for me is to have the bulk of the portfolio in large, blue chip companies that pay me a steadily increasing income over time.
When it gets to about a year before my projected portfolio date, I review my goals and come up with a new projected value 3 years hence. Without changing the percentages, sometimes I find that what was a 'full position' is not quite full any more due to growth of the portfolio as a whole. In that case, I might be looking to add to that position in the future.
I also look at the income percentages of each holding. I don't want to be dependent on one company to be providing 15% of my retirement income and then have them cut the dividend on me. Although I have no set position sizes on income, I do look for "reasonableness" and if something is too far out of range, adjust the value position size.
Lastly, your 'full position' size companies could change over time. I'm finding that as I get closer to retirement, I'm more interested in the higher yielding REITs and utilities becoming a bigger part of the portfolio. So, on the next revision, I'll probably be bumping up their percentages a bit and dropping the percentages for the lower yielding, higher growth companies while still trying to maintain the dividend growth rate at 150% of expected inflation listed in my portfolio business plan.
That's my long-winded explanation of position size from my point of view. Anyone else care to join in?
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan