The 5 Percent Rule That Protects Your Portfolio

How much should you put into one company? It’s a question every investor faces, and one that can make or break your results.

No matter how strong a business looks, anything can happen. That’s why I follow a simple rule:
Never invest more than 5 percent of your portfolio into one individual company. Don’t put all your eggs in one basket!

This isn’t about playing it safe. It’s about staying in the game. Even the best companies face shocks you can’t predict — new competitors, regulation, management mistakes, global events. A 5 percent cap ensures no single decision can derail your long-term plan.

Why the 5 Percent Rule Works

When your position size is sensible, you think clearly. You can sit through a bad quarter or a temporary drop without losing confidence. But when one company becomes too large, emotions take over. You watch every move, you second-guess decisions, and you risk selling at the worst time. Keeping your exposure limited helps you stay disciplined and patient the two most important traits in successful investing.

Limiting the size of your position, also limits the size of your exposure to the fortunes of one company. This is common sense for humble investors. 

Letting Winners Run

Once you’ve started with the right size, you can let a winning company grow. If the share price doubles or triples, that’s fine. You don’t need to cut it immediately.
But stay aware of how much space it takes up in your portfolio. If it grows to a level that starts to dominate everything else, that’s when trimming can make sense

The goal isn’t to sell great businesses too early, it’s to prevent a single holding from defining your entire future. 

Summary

No matter how confident you are in a company, surprises happen.
A simple rule — no more than 5 percent in any one investment — protects you from the unknown and keeps you calm through volatility. It’s one of the easiest ways to build a portfolio that you can actually hold for the long term, and that’s where the real rewards come from.

If you’d like help building an evidence based portfolio that focusses on managing downside risk first and foremost, get in touch for a free initial review meeting.