At PBRG, we’ve developed an investing plan to keep us grounded even in the most volatile markets. If you stick to it, you’ll be able to outperform the average investor and limit your losses.

So run your portfolio through the six-step checklist below, and you’ll be ready for anything the market throws at you…

  1. Is your portfolio diversified? Numerous studies show that asset allocation accounts for more than 90% of your investment returns. Greater diversification also results in lower risk. So a good start is owning a mix of domestic and foreign stocks, bonds, commodities, real estate, and gold.

  2. Do you own true alternatives? Be comfortable with being uncomfortable. In other words, think outside the box. Get some exposure to “true” alternatives like collectibles, cryptos, private placements, and annuities. They’ll generate long-term outperformance while shielding your portfolio in the meantime.

  3. Do you have a rainy-day fund? Cash is often a forgotten asset class, but it gives you optionality. You never know what opportunities life might throw at you. Whatever they are, cash typically meets the need better than anything else, so it’s crucial to hold some. We recommend allocating up to 10% to cash.

  4. What are your position sizes? Position sizing refers to the size of a position within your portfolio (the percentage or dollar amount of your investment). Our simple rule of thumb is: If a position gets stopped out of your portfolio, your maximum loss should be no more than 2.5–5% of your portfolio’s value.

  5. Do you use stop losses? Stop losses let you control how much you’re willing to lose. They eliminate emotion (an investor’s greatest enemy) from sell decisions. And they protect your investments from devastating losses.

  6. Do you have an allocation to safer stocks? Invest in companies with quality balance sheets, attractive valuations, solid earnings, and strong growth prospects.

This checklist has served us well in the past, and it’ll continue to do so going forward. We suggest you print it out and keep a copy handy.

Palm Beach Research Group