I want to expand more on the stock allocation. Especially in Singapore market. I myself have this rule of allocation. 30% reserve, 60% in blue chips and 10% on penny stocks.
This allocation is not fixed. You could tuned it to suit your investment style. If you are a high risk investor, you could put more % weights on penny stock. But try as much as possible to keep at least 50% of your money in blue chips. Its safer as these stocks are normally very stable and they give better dividends.
I keep 30% of cash reserve as a kind safety net. And normally, I would save up to that amount before I buy any more stock. For example, $3,000 is my 30% reserve. I will work and save to $3,000 or more before I buy any more shares. This reserve is really for some special cases that might happen in the stock market. Things that I could use the money for are like IPO applications, stock splits (most are good buys as its cheaper) or even some major things like market crash, you could actually use this 30% and go into the market to get some good bargains. Try as hard as you could to keep such cash floating as its a healthy habit. If there is a sudden need of money and you do not have enough savings, you could still use this 30% reserve before selling your stocks or investments. Remember, we are talking long term here!
Another important thing to note, never put in more money than you can afford. Never buy using contra. Be disciplined and stick to the allocation rule. Its like gambling. I take out $10,000. If I win, I will chip in more or I could cash out the profit to buy something I like or spend it on a trip or even saved it later for some other investments. But if I lose, then the limit I shall lose should be 10,000. No more no less. If you have lose the $10,000 with such allocation rules. It means you are not that good at picking stocks. Which will be the focus on the next chapter.
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