Q: Why is the 10% rule so important for investors?
A: If you're buying individual stocks — and don't know about the 10% rule — you're asking for trouble. It's the one rough adage investors who survive bear markets know about.
The rule is very simple. If you own an individual stock that falls 10% or more from what you paid, you sell. Period. You don't rationalize the loss and wait for the "good stock" to "come back." Investors who dabble with individual stocks understand that getting back to even following a loss greater than 10% is a difficult task.
Take this example. Say you paid $50 for a share of a stock that rises to $60. If the stock drops to $45 a share, you should be out. End of story. There's a mathematical reason for this. The percentage gains needed to recover from a big loss quickly balloon. Going back to the example of the stock that started at $50 a share and dropped to $45. Just to break even — and get back to $50 — the stock needs to rise 11.1%. Let's say instead of selling at a 10% loss, you wait until the stock falls to $40 a share, for a 20% loss before selling. That means, the stock needs to jump 25% just for you to break even. And to recover from a 30% decline to $35 a share in this example, you'll need a 43% rally.
The 10% rule could become even more important if the market continues to drop. Savvy investors know it's just as important to know when to sell a stock as it is when to buy it.
Remember, though, the 10% rule applies only to individual stocks, which are mostly riskier than the market. If you're a long-term investor with a diversified portfolio, academic studies have shown it's much better to ride out the volatility. There are also more complicated ways to hedge against big losses by using derivatives such as options. But for a rule of thumb, the 10% rule is a great guide.
USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.
A: If you're buying individual stocks — and don't know about the 10% rule — you're asking for trouble. It's the one rough adage investors who survive bear markets know about. The rule is very simple. If you own an individual stock that falls 10% or more from what you paid, you sell.
So, let's talk about taking on risk responsibly. So, when you're ready to invest, you want to implement something I call the 10% Risk Rule. And this basically is just limiting your risky investments to no more than 10% of the total money you have invested. Let's say you have $50,000 invested.
Therefore, sticking to the rule of keeping no more than 10-15% of your overall portfolio invested in a single stock may become even more critical of a benchmark to follow both to mitigate volatility, potential returns, and hazards to your overall financial life.
Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.
Always sell a stock it if falls 7%-8% below what you paid for it. This basic principle helps you always cap your potential downside. If you're following rules for how to buy stocks and a stock you own drops 7% to 8% from what you paid for it, something is wrong.
On average only 10 percent of energy available at one trophic level is passed on to the next. This is known as the 10 percent rule, and it limits the number of trophic levels an ecosystem can support.
Scientists have calculated that an average of 90% of the energy entering each level is stored and stays at that level. Only 10% of the energy is available to the next level. For example, a plant will use 90% of the energy it gets from the sun for its own growth and reproduction.
What explains the superior performance of the 100% international equity portfolio? Stocks have a much higher expected return than treasury bills and bonds. The authors estimate real expected stock returns to be four times those of bonds. After a period of decline, stocks tend to rebound.
It's a good idea to own a few dozen stocks to maintain a diversified portfolio. If you load up on too many stocks, you might struggle to keep tabs on all of them. Buying ETFs can be a good way to diversify without adding too much work for yourself.
Can you over-diversify a portfolio? Yes. Holding 50 stocks rather than 25 may lower your downside risk somewhat, but it can also reduce your profit potential. And at that point, it may be better to consider investing through an index fund, or even a combination of several sector-based funds.
The 11 am rule suggests that if a market makes a new intraday high for the day between 11:15 am and 11:30 am EST, then it's said to be very likely that the market will end the day near its high.
The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
In response to new technologies and increased demands (particularly global demands), the stock market began offering extended hours that now allow you to trade shares as early as 4 a.m. and as late as 6:30 p.m. — but there are fewer buyers and sellers at those times.
Many consider a conservative rate of return in retirement 10% or less because of historical returns. Here's what you need to know. Need help planning for retirement? A financial advisor can help you manage your portfolio, figure out how much income you'll need and assist in other important decisions.
How long should you hold? Here's a specific rule to help boost your prospects for long-term stock investing success: Once your stock has broken out, take most of your profits when they reach 20% to 25%. If market conditions are choppy and decent gains are hard to come by, then you could exit the entire position.
An overview of the so-called New York Stock Exchange (NYSE) 20% rule requiring stockholder approval before a listed company can issue 20% or more of its outstanding common stock or voting power.
While 10% might be the average, the returns in any given year are far from average. In fact, between 1926 and 2024, returns were in that “average” band of 8% to 12% only eight times. The rest of the time they were much lower or, usually, much higher.
General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%. Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market.
A general rule of thumb is that cash or cash equivalents should range from 2% to 10% of your portfolio, although the right answer for you will depend on your individual circ*mstances.
So where the 8% rule differs from the 4% rule is that it's focused on passive income yield, not on selling anything. So if you had a portfolio of passive income investments valued around $2 million, and they were averaging about an 8% annualized yield, you would have 160,000 per year in income to live on.
Introduction: My name is Pres. Lawanda Wiegand, I am a inquisitive, helpful, glamorous, cheerful, open, clever, innocent person who loves writing and wants to share my knowledge and understanding with you.
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