After selecting stocks for your Folio, you’ll need to choose how to weight them. Your weighting strategy determines how each holding impacts your Folio's performance. Opt for a market cap-weighted Folio, where larger companies have more influence, or an equally weighted Folio, where each stock has the same impact regardless of size.
Market-Cap Weighted
In a Market-Cap Weighted Folio, stocks are weighted based on their market capitalization—the total value of a company's outstanding shares. Larger companies, therefore, hold a more significant percentage of the portfolio. For instance, if Apple's market cap is five times larger than another Folio holding, it will have five times the weight.
Pros
Higher exposure to larger, more established, & less volatile stocks
Mirror the broader market—when stocks grow in value, so does their Folio weighting.
Cons
Returns from smaller stocks have less influence on Folio performance.
Possible over-concentration in a few large companies
Equal Weighted
In an Equal Weighted Folio, each stock is given an identical percentage of your overall portfolio, regardless of the company's size or market capitalization. For instance, if you have ten stocks in your Folio, each one would represent 10% of your total investment.
Pros
Prevents mega-caps from dominating the strategy
Potential for higher returns from smaller growth stocks
Cons
Higher volatility due to exposure to smaller, less established stocks
Possible under-exposure to dominant, high market cap stocks
Choosing between market-cap and equal weighting strategies ultimately depends on your investment objective. Market-cap weighting offers stability through established companies but may limit growth potential, while equal weighting provides broader market exposure but comes with higher volatility. Consider your investment timeline, risk appetite, and portfolio diversification requirements when selecting your preferred weighting strategy.
This content is for informational purposes only. OPTO Markets LLC does not recommend any specific securities or investment strategies. Investing involves risk & investments may lose value, including the loss of principal. Past performance does not guarantee future results. Investors should consider their investment objectives and risks carefully before investing.
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