Every portfolio should be broken down into equal portions with each portion containing the same number of dollars as the other. The term unit will be used to represent this concept from this point forward. This method can be used to ensure that the portfolio is diversified and is being invested in an optimal manner. This is not to say that only one unit should be invested in a certain equity, but only that the portfolio should be invested a unit at a time. The optimal number of units for a portfolio should be around 20. This will keep our investments diversified enough to keep us out of harm's way in case a certain company or even a certain sector endures troubles. As far as a minimum per unit amount, I would place this number at $500. Because of today's internet, investing has become easy and cheap. You do not need to have $5,000 or more per investing unit in order to make it worth your while to pay a certain amount of commission to your broker.

New investors could temporarily overlook the idea of having investing units. What they need to do is figure out how much money they can save up. For example, if you can save $300 a month, beyond covering the nut, then you may want to send that money in to your broker every month. One quick advantage you will get out of this is that your broker probably pays higher interest than your bank. Just keep sending the money in and when the total exceeds $500, you are ready to invest your first investment unit. Also note that some brokerage houses may have a minimum requirement in order for you to open an account. First time around you many have to meet these requirements, but after that you will send money in as it becomes available.

Let us take an example of an investor who has a $200,000 portfolio. His investing unit size should be $10,000. He currently has $30,000 cash sitting in his portfolio. He finds a bargain, so he invests $10,000 in it. Then the stock goes down in value. Has this stock suddenly become bad because it decreased in value? No, absolutely not. If the investor has done his research correctly, then all that has happened now is that another buying opportunity has presented itself. This is the time when another unit can be invested into this equity.

This is the way that we keep our money diversified. We invest it 20 different times. We might end up buying the same equity over and over, but we do it multiple times, at different prices and get the chance to cost average down.