Q: What percentage of one's portfolio do you recommend to put into cyclical stocks, for someone with moderately high risk tolerance and 30+ years to invest? Why?
5i Research Answer:
We might target 10%. Typically, the sector is highly volatile, so while long term compounding over can still occur over 30 years, other sectors with less cyclicality have more potential over such a long time. Many cylical stocks also do not pay dividends, or pay highly variable dividends, with cuts/omissions during down cycles. A 10% position can easily swing to 15% in an up cycle, and this would allow investors to trim back to 10% for the down cycle.