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Excuse me for asking a potentially dumb question, but what are some
"accepted" rules of thumb for money management AFA mutual funds are
concerned.
I can see that you might risk say 2%, on a position, and know what your
stop loss would be, and then divide the price per share of the fund by
the loss level to approximate the number of shares to buy.
But what about some of the other rules of thumb, like do not risk more
than 3% of total equity on a position. Or does this apply to the stop
loss? Seems like 3% might be a small (too small?) amount for a mutual
fund position. I do not know. It depends on the size of your portfolio
of course. What if you have a $20,000 portfolio? What if you have a
$2,000,000 portfolio. A $60,000 MF purchase out of a $2M portfolio does
not "seem" to be the right "proportion", or is it?
Also, what about the inherent volatility reduction that occurs with the
multiple stocks in a fund?
What about the number of funds to own at a single time? How would you
go about figuring this out, given high correlation among the funds?
....or given low correlation among the funds?
Is it better to divide a given amount (say $100K) among two similar
funds ($50K each) ,or is it better to plunk the entire amount into the
one fund? Would you increase the number of different funds given
increasing size of total portfolio funds?
Again, maybe a whole series of dumb questions but what do some of you
more experienced money management folks have to say for this?
Thanks,
Ken
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