# How do I figure out portfolio allocation percentages and how do they relate to Supernova?

If you’re following along with an investment service to build a perfect portfolio, you’re probably grappling with the moving targets that are your portfolio allocation percentages.

Even we admit, it’s pretty confusing. Portfolio allocation percentages are actually based on simple math, but without some concrete examples, they can be hard to understand. So let’s start with the basics…

As you probably already know, an allocation percentage is the percentage of your investment portfolio that goes toward a specific company. In other words, if you have \$100,000 total to invest, and you’re initiating a 1.3% allocation for Togas & Ties Inc., then you are investing \$1,300 in that company’s stock.

The easy formula is:

Investment allocation / total investment = allocation percentage

\$1,300 / \$100,000 = .013, or 1.3%

That wasn’t too painful, right?

Sorry, it gets more complicated.

## A deeper dive on portfolio allocation

The problem is that percentages change – after all, we’re hoping that you don’t make a single lump-sum investment and never add to it. The best long-term investors are constantly adding to their portfolios. Unfortunately, that changes the equation.

So what happens to the allocation percentage after you add funds to your portfolio? It decreases!

For simplicity’s sake, let’s keep rolling with the Togas & Ties example. If you add another \$50,000 to your \$100,000 portfolio, you’ve got a new denominator.

So let’s look at our formula again:

Investment allocation / total investment = allocation percentage

\$1,300 / \$150,000 = .0087, or 0.87%

Since the denominator — your total investment — has increased, the allocation percentage has decreased. Each time you add funds to your portfolio, your allocation percentage will decrease.

## Portfolio allocation in Supernova

Supernova® is one of those premium services that helps members follow along and match their portfolios with Supernova’s active portfolios (“Phoenix” and “Odyssey”), both of which are based solely on co-founder David Gardner’s top stock picks.

We start with an initial amount of cash for each of our portfolios and then continue to add cash based on the portfolio’s goals. For example, in Phoenix 2, we started with \$250,000, and we’re adding \$50,000 per quarter until the portfolio size reaches \$750,000 (AKA, 10 quarters). This means that after each quarter, the allocation percentage for every Phoenix 2 stock will decrease. (The same goes for the Odyssey portfolio, although the cash amounts are different.)

If you are a Supernova member, you may be confused about how much money you should start with. After all, there are many approaches when it comes to how you want to adapt your portfolio to match ours. However, you’ll most likely fall into one of the following categories:

• You have a lump sum of money that you want to invest, and you will not be adding to it over time.

If this sounds like you and you want to follow along with our portfolios, then do NOT start by investing that entire lump sum. Instead, determine the total amount you want to invest by the end of the Supernova mission, and then invest only the percentage that matches where our portfolios are currently standing.

So what exactly does this mean? Let’s take another look at our Phoenix 2 example…

By June 17, 2015, Phoenix 2 had one quarterly infusion of cash, so we will have invested \$300,000, or 40% of what we will have invested by the end of the 10 quarters (\$750,000). So in order to follow along with our plan, if you have \$10,000 total to invest, then invest only 40% of that lump sum. In other words, enter \$4,000 into “Match Our Portfolio.”

After the next quarterly infusion, we will have invested \$350,000, or 47% percent of the final \$750,000 sum. So if you’re following along, add an additional 7% of your portfolio.

See where we’re going with this?

• You will have money coming in regularly

If you fall under this category, you can invest the total lump sum of what you have available, not just 40%. Just enter this sum into “Match Our Portfolio” and buy the number of shares the tables instructs you to. (No math required, hooray!)

If you’re a Supernova member and have further questions, click over to Supernova discussions. If you’re not a member, consider activating your very own Stock Advisor membership, available now with a 7-day free trial, to get a glimpse of our premium services.

— Answer provided by Motley Fool intern Caroline Jennings