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A weekly review of trends, facts and tips for journalists
- *To assist investors with minimizing stock-specific risk, Greg Forsythe shares Schwab's best practices for properly constructing a diversified stock portfolio.
- Deciding when to sell a stock is a constant struggle many investors share. Rande Spiegelman reviews the fundamental reasons for selling a security.
CONSTRUCTING A DIVERSIFIED STOCK PORTFOLIO
Greg Forsythe, senior vice president, Schwab Equity Ratings 
In a previous article we showed you that concentrated portfolios of 20 stocks or fewer are usually highly volatile and can't be expected to provide higher returns. Therefore, to minimize the impact of stock-specific risk, we recommended owning at least 40 stocks — far more positions than most investors hold.
Here, we'll share Schwab's best practices for properly constructing a diversified stock portfolio.
MANAGING OVERALL PORTFOLIO RISK
The most general definition of investment risk is "return volatility through time." Asset allocation is your most important decision when managing overall portfolio volatility. For example, a measured blend of stocks (domestic and international), bonds and cash tends to provide a higher level of return per unit of risk exposure than an all-stock portfolio. Consequently, it's better to reduce the overall risk of an all-stock portfolio by allocating part of the portfolio to bonds rather than by trying to invest only in less-volatile stocks.
MANAGING EQUITY PORTFOLIO RISK
After targeting your overall portfolio risk level via asset allocation, you can turn to managing risk within your individual stock portfolio. The primary objective is to manage volatility relative to your benchmark so that your stock portfolio generally moves with or "tracks" the stock market.
Media Contact:
Lara Edge
415-636-3386 or 415-636-5454
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DO YOU HAVE A REASON TO SELL?
Rande Spiegelman, vice president, financial planning, Schwab Center for Financial Research 
Buy, sell or hold? These are the eternal questions investors everywhere face. Of the three, investors seem to struggle most with the decision to sell. Let's take a close look at two fundamental reasons for selling a security.
YOU NEED CASH
Most of us know it's a good idea to keep sufficient cash reserves for unexpected expenses and only commit long-term investment money to volatile markets.
Ultimately, however, your portfolio is a tool that you likely mean to use someday. Chances are, you eventually will sell some stocks to one degree or another in order to fund various long-term goals, ideally as part of a thoughtful distribution scheme that combines cash-flow planning with portfolio rebalancing. Enjoying the fruits of a prudent long-term investment plan is what it's all about.
It's important to recognize the difference between unexpectedly having to raise cash in a forced sale at the worst possible time and the strategic use of your portfolio over an appropriate, predetermined time frame. Given the latter, selling to raise cash can be a legitimate, prudent motivation. In this case, seeking an appropriate investment alternative is not a factor.
Media Contact:
Lara Edge
415-636-3386 or 415-636-5454
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IMPORTANT DISCLOSURES
This information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice or an offer or solicitation to purchase or sell any particular security. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. The strategies mentioned may not be suitable for everyone. Each investor needs to review investments and strategies in light of his or her own particular situation. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA and/or attorney. Data contained here is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
All expressions of opinion are subject to change without notice. All research has been compiled from publicly available, proprietary and/or licensed data. Past results are not indicative of future performance.
Charles Schwab & Co., Inc. (Member SIPC) is a subsidiary of The Charles Schwab Corporation. The Schwab Center for Financial Research is a part of Charles Schwab & Co., Inc.
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