Your Diversified Investing Portfolio Is A BIG MISTAKE

The accepted wisdom in the world of investing is that you have to diversify your portfolio.

Portfolio diversification reduces your investing risk and exposes you to more potential on picking winners.

But what if I told you that the way almost everyone diversifies their portfolio is BAD for their investing performance?

I keep seeing a lot of people talk about this in different investing communities and the big problem is that in almost every case, people misunderstand what diversifying your portfolio actually means.

And those people go and diversify into 50 or 100 stocks and end up losing to the stock market as a result.

There is a right way to diversify your portfolio, but it isn't what most people seem to think it is so here's my thought.

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[SashaYanshin]

This one is definitely not going to attract any sort of criticism whatsoever.

[stevo]

Most people don't have the time to follow one stock.

[swissarmyknight]

76 companies in my portfolio, I am currently beating the market. I did actually do the research, I had a lot of time on my hands, and every one of those was a value investment. I am distributed through every sector, with every sector in approximate proportion to the market. Currently rebalancing.

As for knowing when to sell, that would be when a single stock exceeds 10% of portfolio or when a sector becomes substantially overweight. Otherwise, why would I sell if I don't need the money? The objective is to own more.

Why do this? I like it, I don't charge an expense ratio, and well, I'm currently beating the market, so there's a chance I might actually be good at it. Keeping up with 76 stocks is kind of a hobby for me.

[brianhanson]

I only do one single solo stock which is Tesla which I plan to only account for maybe 5% of my assets and the rest of my assets are a mix of Large Cap, Mid Cap, Small Cap, and Total Market index funds. I don't really see myself as someone who is going to pay too much attention to buying and selling a bunch of different stocks so I went for a more automatic investing opportunity.

[biostud]

The same reason I’ve just invested in five different index funds. I neither have time or skill to beat the market…

[joefau]

How do you factor irrationality into your analysis? I just look at charts and read articles 40 hours a week.

[AA-fbni]

But what if you invest in ‘safe dividend’ companies that are already well established in the S&P500 such as JNJ and MSFT etc. There’s enough research out there on these companies for you not to have to spend 11 hours a week on them. You can also receive a healthier dividend than say from an index fund.

So invest in an index fund by all means but also pick stocks from that fund to maximise your gains?

[jaycordt]

I have 4 ETFs and 11 individual stocks. Does that seem like too much? Be honest!

[MdR]

Interactive Investor

7 Funds (5 growth, 2 income)
2 ITs
2 ETFs
No REITs yet.
No Commodities yet.

Pound cost averaging all the way

Keep nerve when markets slump

Don't overstretch in rest of life

Enjoy life

Patience and discipline

Retire at 55 (here's hoping!)

[themusic]

The hardest part about single stock investing is that the majority of companies have a limited shelf life or they’ll end up reaching a terminal growth rate with lesser and lesser returns over time. The only company to have been in the top of the S&P for both of the last 2 decades is Microsoft. That’s how rare it is to invest in a company and get market average or beating returns over even just 20 years let alone 30.

[Paint]

I hold 26 different stocks. I have Hasbro stock because it did well in the last recession and there might be another recession.

[iii]

So if one wants to invest in an index fund, but in the most concentrated way it would be the Nasdaq100?

[hpeggfs]

In general owning one stock or owning the whole global market you have the same expected returns but with one stock you get extra risk that is not compensated. Owning the whole global market the price of your stocks get discounted for the market risk aka the expected future cashflow is cheaper than global bonds or tresuries, owning a few stocks the stocks are not suddenly more discounted than the global market BUT you get more risk ! Factor investing is the only reason to concentrate a little as you get exposure to other risks but still as much companies as possible of the factor And a small portion of the portfolio, like having 10% small cap value stocks, with ZPRV and ZPRX you get that with 2000 small cap value companies.

[DafyddMorse]

@Davis Watkins. I think you've misunderstood. Diversification means 50% TSLA 50% BTC.

[neilvita]

you could also just invest for the long term as long as you look into the stocks for the long term

[LASTHEROGY]

Hi Sasha, do you think it is a good idea to invest for a long time in S&P 500 Vanguard and ISHARES CORE MSCI WORLD UCITS ETF ACC in a ratio of 50/50%

Or can you just take the S&P 500 Vanguard?

Investment for 15-20 years

[TheCompoundingInvestor]

You make a good point here that most people would be better off just trying to match the market and buy an index tracker.

[liamcraighill]

Ive 30k in snp500 only woukd you just keep adding to this im 34

[stevo]

The problem comes when accounts are fraudulent. I lost £2k on fraudulent accounts in the 2000's.

[Judah_Mafia_]

I’m diversified alright one individual dividend stock, one individual non dividend stock and bitcoin 😊