With only a few trading days left in 2016, many investors are making their resolutions for 2017.
“Next year I’ll follow the trading signals.” “In 2017, I’ll get rid of the stocks that are hurting my portfolios.” “I’ll set up my portfolios for the best return possible really soon.” And the big one, “Next year I’ll stop being so emotional with my stock picks.”
Why wait? There’s no better time than the present to look at your portfolio in the same way that a professional would and figure out how to invest like a pro in 2017!
Have any losses from 2016? Then consider “harvesting” those losses. Tax-loss harvesting means selling the stocks that are losing money. You can use these losses to offset the capital gains you’ve made in other stocks throughout the year. If your losses are more than your gains, you could potentially carry forward these losses into 2017 and beyond.
After a pro has finished harvesting his losses, the next thing he does is take a look at his portfolios and determine if he is invested too heavily in one or two sectors. The TradeStops Asset Allocation tool can help you with that. It gives you a quick overview as to how you’re invested from a sector or industry perspective.
This sample portfolio has over 34% invested in the consumer discretionary sector. Having that much money in a single sector could mean that it’s overweighted in your portfolio.
The next thing that a professional would do is to see if there are any potential “time bombs” in his portfolio. These are stocks that could damage a portfolio by pulling down overall returns. These stocks should be considered for removal from the portfolio.
TradeStops Premium makes this task simple. Just go to the Risk Rebalancer and have all of the stocks that are in the SSI Red Zone removed from the portfolio. The Rebalancer will reallocate the funds from these potentially destructive stocks into those that are better-positioned to move higher.
Here’s a sample portfolio that has 11 positions, and 3 of those are in the SSI Red Zone.
We can remove the stocks that are in the Red and reallocate the funds into the stronger stocks.
And we’ll take the exact same dollar risk per position. This is how a pro is able to stay in trades for a longer period of time and maximize the potential gains.
This is what the same portfolio looks like after removing the red and right-sizing the remaining positions.
In this example, there is $1422 of risk in each stock. That means you can own 321 shares of GE but only 34 shares of NFLX.
If the only thing you did this year was to rebalance your portfolio so that you’re right-sizing your positions and taking the same amount of dollar risk in every trade, the long-term results could be outstanding.
Here’s an example of one investor who went from a loss of $100,000 to a gain of almost $60,000 just by right-sizing his portfolio.
I’ve heard predictions for 2017 that run the gamut from new all-time highs at the end of the year to portfolio-crushing bear markets. I don’t know if either of these will be correct or if somewhere in the middle is the more likely outcome.
I do know that by managing your portfolio like a pro using the TradeStops tools, you’ll give yourself the biggest opportunity to succeed profitably in the years to come.
Here’s to profitable New Year’s resolutions,
Education Director, TradeStops