How to Allocate Your Funds

I hope you had a wonderful time celebrating the start of 2017! Now that we’re officially back from the holiday break, I’d like to kick off the new year by highlighting a couple of great allocation questions I recently received in the mailbag.

It’s the perfect moment since the portfolio is standing steady, and the system hasn’t triggered any new trades for us this week. Here is the table of our existing positions and allocations:

Remember, this beta test is all about perfecting the Stock Trader Alert service. Ensuring you’re comfortable and confident trading the system is an integral part of that. So if you ever have any questions for me about a certain trade or the system itself, please don’t hesitate to send me a quick email at stocktrader@sovereignsociety.com.

With that said, let’s dig into today’s mailbag…

After the initial 15 or so trades, the process seems to be much less taxing. My initial investment during this trial period was $10,000. Going forward, my plan is to add an additional $90,000. I am assuming that I allocate the additional funds according to the percentages initially given to me?

I’m glad to hear that the trading system has proven to be relatively easy to navigate. To answer your question, yes, any new funds that you might add to the portfolio need to be allocated according to the percentages that we have advised. One-half of the overall portfolio needs to be dedicated to the exchange-traded fund (ETF) position. The remaining 50% should be split among the remaining 15 stock positions using the allocations provided in the table.

I have invested $10,000 into this service and did the initial trades as directed. The first three sell recommendations have ended in a loss — not a significant total.

Are we to take our overall balance in the portfolio of $10,000 minus the $5,000 ETF position? Then take $5,000 minus the loss from the sold positions and multiply it by the allocation for the new position? Do you use this figure to base how many shares to purchase?

Also, if we do that and the price is fractional, do you round up or down for the amount of shares you buy?

That’s a great question. Let me see if I can shed some light on allocation and the math regarding fractional shares.

On December 28, we recommended selling TJX Companies and National Retail Properties and purchasing C.H. Robinson Worldwide (Nasdaq: CHRW) and Ross Stores (Nasdaq: ROST). Since the allocation sizes are all roughly the same at 6.7%, the easiest way to handle this is to sell both the TJX and National Retail Properties positions. Divide the proceeds of the two sales in half, and put one-half of each into the two new positions.

Frequently, you’re going to find that the amount that you have to invest in a particular stock is not going to come up to a whole number of shares. Unfortunately, you can’t buy fractional shares of a stock. As you suggested, it is best to round.

If your calculations say that you should buy 4.87 shares, it’s best to round up to five shares. If it falls below 0.5, then you should round down. As a result, your allocations might be just slightly off from what we advise, but that should be fine for the purposes of garnering strong returns from this trading system.

I hope that clears up the questions about allocations, but if you still have more, you can always reach me at stocktrader@sovereignsociety.com.

Talk to you all next week.

Kind regards,

Ted Bauman
Editor, Stock Trader Alert