Here are some simple heuristics to follow when investing the equities portion of your portfolio:

1. Not more than 5% in one stock and no more than 20% in one industry:

This is fairly obvious – Diversification.

The higher the diversification, the lower the non-systematic risk.

Diversification makes your portfolio resistant to events that happen to single companies and industries – a management scandal, introduction to restrictive legislation in the industry, disruptive innovations, etc.

This also means that the impacts of positive events will be diluted. This is a fair price to pay for stability and risk management.

Don’t put all your eggs in one basket.

2. All the stocks you hold should pay dividends:

This is where a LOT of people don’t agree with me but hear me out.
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