# How to Determine Weights in an Investment Portfolio

by C. Taylor

Determining the weights of your investment portfolio allows you to identify which securities compose the greatest or smallest percentage of the overall portfolio. Using that information, you may discover that an undesirable percentage is devoted to a risk investment, such as a volatile stock. If that's the case, you may consider rebalancing your portfolio for a more even allocation. Although some investors calculate weight based on the number of shares, this is a fallacy, because one share of a \$1 stock is not equivalent to one share of a \$100 stock. Therefore, the security's value should be considered.

1. Determine the value of each individual security. As an example, say you had 10 shares of the \$100 stock ABC, 30 shares of the \$30 stock DEF and 100 shares of the \$5 stock GHI. Stock ABC's value is calculated by multiplying the 10 shares times the \$100 price per share. Therefore, the overall value of stock ABC is \$1,000. Likewise, stock DEF and GHI would be valued at \$900 and \$500, respectively.

2. Add the total value of your portfolio. In the example, you would add \$1,000, \$900 and \$500 to calculate the portfolio's total value of \$2,400.

3. Divide the security value by your portfolio's overall value. In the example, you would divide stock ABC's value of \$1,000 by the portfolio's value of \$2,400. This tells you that stock ABC comprises 0.417, or 41.7 percent, of the overall portfolio. Likewise, stock DEF comprises 37.5 percent, and stock GHI comprises only 20.8 percent of the portfolio. Even though you have the fewest number of shares in stock ABC, it weighs the heaviest of all your investments.

#### Photo Credits

• Hemera Technologies/AbleStock.com/Getty Images