It’s 2013 – a brand new year – and you, my friend are overweight. You are hitting the gym, you are pounding the treadmill and the elliptical contraption because you have 15 ugly pounds of fat on your frame that you did not have in November. With some hard, hard slogging – and maybe a closer eye on your food and wine intake – you will shortly be back to fighting weight!

Well, that looks after your physical being. Now, what about your own financial well being where your respectably-sized portfolio consists of 20 stocks, some in growth stocks, some in income-related equities? You may think you are diversified but what would you think if someone were to tell you that not only are you weigh-scale overweight, but maybe also way out of whack in terms of your portfolio weighting as well?

What do we mean? Well, since you have 20 stocks in your $400,000 portfolio, but you are terribly imbalanced – and therefore greatly at risk – if you don’t keep an eye on the individual valuations of those holdings. In an ideal, or near-ideal world, each of those 20 holdings might be valued at $20,000 – give or take a bit here and there – but not in your case because you are looking for a home run, a grand slam. Instead, you’ve got 18 stocks – again, comprising both growth and income – each valued at something like $15,000, totaling in the order of $270K.

And with the remaining $130K, guess what you’ve done? Yes, you have plopped $65K into each of two small-cap growth speculative stocks with a supposedly promising outlook, but with debt, no real revenue or earnings history. You have $130,000 of a $400,000 retirement portfolio sitting on two “story” stocks – and there isn’t a single, solitary person on God’s green earth who might have a single, solitary clue how it all might pan out. In other words, you may be too greedy, not an investor at all, or at least an overly optimistic one. You are not truly an investor, and you are not investing smartly; instead, as the late Dusty Springfield once sang, you are doing nothing more than wishing and hoping, hoping and praying, all on behalf of some kind of avarice-based dream. And why, oh why, might we say that?

Because, simply, those two $65K “story” stocks can come crashing to Earth in a heartbeat. A single horrible quarter, a single large lost contract, a single major management misstep can cut stock values in half, or even worse. They can turn your dreams of riches quickly into nightmares. Oh, sure, you might get lucky and things might pan out beautifully. But when you are 50 years old – with limited working and investing years remaining – you simply don’t have enough time to make up for significant investment error. So, here’s what we think: If a 20-stock portfolio makes sense to you – and it does to us as well – think in terms of the “six-per-cent solution”, a strategy under which you would allow no single holding to exceed six per cent of your portfolio’s overall valuation. If one of your holdings goes on a nice northward run (and good on you if it does), then it may well be time to consider trimming your position and holding some proceeds in cash – or add to your other holdings – while you decide what to do next.

Let’s get right to the point: Back in the day, everyone you met had a horrible Nortel story to tell because they hung onto Nortel far, far too long without even considering a portfolio re-balance. These days, similarly, everyone seems to have a nasty Research in Motion tale because they, too, thought RIM's stock price was heading straight to the sky. The “six-per-cent solution” certainly would not have eliminated investment losses in those stocks, but would have made those losses much, much easier to bear.