Defining the size of your portfolio.

Now that the different portfolios (Europe, USA, or World) are known, it’s time to think about how much to invest in each and how much not to invest.

It’s up to each individual to manage their own risk, but for example, if I want to invest $10,000 in the USA, with a maximum of 10 stocks to simplify rebalancing, but I believe the volatility is too high, one strategy could be to place 50% of the investment in a saving account, and the remaining $5,000 in a brokerage account (CTO) (ignoring exchange fees between €/$). This way, both volatility and performance will be reduced proportionally. Then, every year, I would try to return to this 50% saving account allocation, for example, by transferring additional funds from the brokerage account.

Thus, I would have a gross performance of about 10.5% instead of 21%, and a monthly volatility of 3.5% instead of 7% (refer to this article), with the saving account providing additional compensation, although I’m not counting it here because it’s difficult to anticipate, as its yield varies depending on central bank rates.

The drawdown would also be impacted accordingly (halved in the example above).

Based on one’s preferences (or patriotism!), a portfolio with the USA and/or Europe can be built.

Another strategy I had initially considered proposing would have been to add a variable cash amount to the portfolio depending on the performance of an index, for example, but this method does not seem satisfactory to me because it reduces the return and does not allow each individual to choose their desired risk level. In my opinion, it’s better to adjust the amount invested in the portfolio and an additional cash amount based on personal sentiment.

Next article: Monthly Rebalancing