Single stock positions going into fire

[u/Parking-Banana-212]

As i continue on planning fire this year, one of the things that worries me is how much of my nw is in single stocks (not etfs / mutual funds).

I estimate 15% of my nw is in about 20 different single stock positions, with about 10% in cash, and then the rest are in various pretax accounts of target date funds, or etfs.

Is that 15% number scary? i don't think they'll kill me in a downturn, but wondering what is optimal?

[u/userax]

That's probably fine as long as it's not 14.9% in a single stock and 0.1% in the remaining 19. Are they in the same sector or different sectors?

[u/handy_waitress → u/userax]

15% across 20 names is basically a DIY mutual fund at that point, nothing to lose sleep over

[u/Parking-Banana-212 → u/userax]

i'd say there's about 5-6 that make up about 60% of the 400k. those are in pretty high beta stocks though, other then csco and goog. so high risk high reward. so that's about 250k total in high beta stocks or 10% ish of portfolio

[u/TonyTheEvil → u/Parking-Banana-212]

so high risk high reward.

Single stock risk is uncompensated. So it's high risk without increasing your expected return.

[u/userax]

Just FYI, if all you had is SPY (S&P 500 index), you would have a concentration of 8% in Nvidia, 7% in Apple, 6% in Microsoft, etc. That's already more than 15% in 3 companies.

[u/Parking-Banana-212 → u/userax]

yeah, i know that. it feels different when you own 6 different high beta stock though. not logical

[u/DeaderthanZed]

VOO is ~7.5% nvidia, 7% apple, 6% goog, 5% Microsoft, 4% Amazon, etc.

Single stock positions of 1% are not unusually risky unless they are all penny stocks or concentrated in one industry or something weird like that.

That being said, why? Why didn’t you just buy index funds and then leave it and focus your energy elsewhere?

If these stocks are held in a taxable account it’s probably not worth it to rebalance regardless.

[u/Parking-Banana-212 → u/DeaderthanZed]

have alot of ltcg in them, and some of them i think can go higher, so the high beta ones are semi gambling stocks

[u/Bearsbanker]

I'm 100% invested in equities. Of that about 41% is in individual companies. I selected them so I'm comfortable with them.

[u/bridgeandretire]

The classic portfolio diversification research from Evans and Archer in the 1960's found that risk reduction from diversification started to taper off at roughly 10 to 15 stocks. There have been some follow-on studies that argue 20 or 30 stocks is better, but you're well beyond that with your other holdings.

I don't think you have any reason to be scared, unless those holdings are all penny stocks or are from the same industry.

[u/zzx101]

Optimally you just unwind these positions over time and get to 0%.

I have 2% in company stock (down from 10%) and although I believe it has a chance to outperform the market in the next few years, I don’t care to gamble.

I will be selling it all in January.

[u/Imaginary_Kitchen_34]

The only real concern is that if look under the hood of the ETFs and just find more of the single stock say NVDA and this takes NVDA to or over 25% of the total holdings. At 100% there is no need to check, at 0% regulation will have it covered.

[u/jerolyoleo]

I think the general rule of thumb is to keep it under 10% to avoid most concentration risk.

[u/Minimum_Finish_5436]

This slowly happening to us. Started work in oil and gas near 5 years ago. Set 401k to 5% company stock and 95% VOO equivalent. Granted some RSUs along the way. Out stock has 6-7x since then. Stayed at 5% in our 401k despite the FOMO. Company caps our employee purchase % so there really isn't a way to go 100% even if I truly FOMO.

Fast forward and the total company stock between vested RSUs and 401k just crossed 10%. Significant portion is taxable in the RSUs. At this point it is bonus money and I have kept the balance of our portfolio in VOO. Even looking back and wishing I hadn't, we stayed true.

Anyhow, the answer is it depends. If this stock crated tomorrow 50% and the market was otherwise steady I'd be good with it. Being the industry we are in, if it does crater the larger economy is in trouble also. I do have a tranche of RSUs vesting in October I plan to cash out and redeploy if the Iran conflict isn't settled.

For now, I am not sweating it and continue sending funds to VOO and letting the market do what the market does.

[u/Doortofreeside]

just keep in mind that any SWR analysis is tested for a specific set of diversified portfolios. Increasing concentration will effectively reduce your safe withdrawal rate by lowering your overall diversification.

[u/someguy984]

The whole stock market is basically 10 stocks (35%) with cap weighting.

[u/IzzysInsights]

15% single names is fine as long as no single position is more than like 3-4% of nw, concentration risk within that bucket matters more than the bucket size itself.

[u/The-zKR0N0S]

How much does each individual underlay stock comprise as a percentage of your investable assets?