The 5% rule for stock portfolio is a general investment guideline that suggests that investors should limit their exposure to any individual stock to no more than 5% of their total investment portfolio. This means that if an investor has a portfolio worth $100,000, they should not invest more than $5,000 in any single stock.
The idea behind this rule is to help investors manage risk by diversifying their portfolios across multiple stocks and asset classes. By spreading their investments across a range of different stocks and asset classes, investors can reduce their exposure to any single stock or sector, which can help to mitigate the impact of any individual stock's performance on their overall portfolio.
However, it's important to note that the 5% rule is just a guideline and may not be appropriate for all investors. Depending on an investor's individual financial situation, risk tolerance, and investment goals, they may choose to allocate more or less than 5% of their portfolio to individual stocks. As with any investment strategy, it's important to do your own research and consult with a financial advisor before making any investment decisions.
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