Most investors size their positions like they slice a pie: by value. If you’ve got a $100,000 portfolio and a $10,000 position, that’s a 10% slice. Easy math, right?
But here’s the twist for income investors: that neat little pie slice might look balanced by value, but it can be wildly unbalanced by income. When you’re building a portfolio to fund your life, you can’t just measure how big a position is in dollars. You’ve got to measure how much income it’s actually throwing off.
Let’s make it concrete. Below is a $100,000 portfolio split evenly by value across four stocks. By value, everything looks perfectly balanced at 25% each. But by income? It’s a different story.
| Stock | Portfolio Value | % of Portfolio (Value) | Annual Dividend | % of Portfolio (Income) |
|---|---|---|---|---|
| Reaves Utility Income Fund (UTG) | $25,000 | 25% | $1,750 (7% yield) | 44% |
| Apple (AAPL) | $25,000 | 25% | $125 (0.5% yield) | 3% |
| Johnson & Johnson (JNJ) | $25,000 | 25% | $750 (3% yield) | 19% |
| Realty Income (O) | $25,000 | 25% | $1,375 (5.5% yield) | 34% |
| Total | $100,000 | 100% | $4,000 | 100% |
By value, the portfolio is perfectly balanced. By income, it isn’t even close: The Reaves Utility Income Fund alone is shouldering 44% of all cash flow, and Realty Income adds another 34%. Apple and J&J — together — contribute less than a quarter of the paycheck.
That’s the income investor’s blind spot. If a single high-yield position is responsible for a giant chunk of your deposits, a dividend cut there is like losing a leg. Your pie looks diversified; your income stream isn’t.
The fix is simple: track two weights for every holding — its % of total portfolio value and its % of total portfolio income. You want both to make sense for your goals and your risk tolerance. If one position’s income weight starts towering over the rest, trim it, redirect new cash elsewhere, or balance with lower-yield, higher-growth names so no single dividend can derail your plan.
A few practical guardrails I like: don’t let any single stock exceed, say, 5% of total portfolio value or 5% of total portfolio income. (Your numbers may vary—these are training wheels, not commandments.) And remember, income concentration risk isn’t just about “high yield” versus “low yield” –sector and business model matter too. A diversified income stream beats a fragile one every time.
Takeaway
Position sizing by value is Investing 101. Position sizing by income is the upgrade income investors need. Look beyond how big a position looks and measure how much of your paycheck it controls. Spread the income load, keep any one dividend from becoming a single point of failure, and you’ll sleep better — and stay invested longer — while those payouts quietly compound in your favor.
Good investing!
Greg Patrick
P.S. Want to see how we manage position sizing — for both value and income — in action? Check out our Income Builder Portfolio — a real-money account built entirely on high-quality dividend growth stocks.
