Investor risk-return preferences - page 2
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I’d still pick #1 (long-only) for most people. Long/short can work, but it’s a risk tool, not a magic return button. If you do use shorts, keep them small and boring.
My rule-of-thumb:
Short allocation: around 10–30% of the portfolio unless you have a proven process.
Leverage: keep gross exposure about 1.3–1.5× equity and margin used under ~30%.
Per-position risk: 0.5–1% of equity per short. Position size = (risk % of equity) / (stop %).
Example: risk 0.75% with a 12% stop → ~6.2% of NAV in that short.
Stops: volatility-based (2–3× ATR above the recent high). Avoid crowded names and expensive borrow.
If the goal is protection, index futures, inverse ETFs, or put spreads are usually cleaner than shorting lots of single names.
Quick $100k example: long 90k, short 20k (gross 1.1×, net 70k). Risk $750 per short; with a 12% stop that’s about a $6.2k position in each short. Plenty of margin buffer, low stress.
TL;DR: long-only is fine. If you add shorts, do it modestly, size by risk, use real stops, and keep a healthy margin buffer.