During a market downturn, people often talk about the importance of diversification. ๐
How many stocks should you actually own to be well diversified? ๐ค
A prevailing statement is that you should plan to own 25 to 30 stocks if individual stocks are to make up the majority (50% or more) of the equity part of your portfolio. ๐ผ Owning at least 15 stocks helps avoid over-concentration in any single stock or sector. ๐
You can obtain more than 90% of the benefits of diversification by owning just 12 to 18 stocks. ๐ But this doesn't mean that holding the Magnificent 7 and another 10 tech companies will reduce your portfolio's risk. ๐ซ
The correlation between your holdings is crucial for diversification. ๐
Generally, correlation ranges between -1 and 1. The lower the correlation between assets, the safer your stock portfolio is. ๐ก๏ธ When analyzing correlation, it mainly refers to the allocation between different assets.
If the correlation between two stocks is 1, the risk of your portfolio is not reduced. In the U.S. stock market, the correlation between various sectors is relatively high, greater than 0.5. ๐
Besides the low correlation between US Treasury and US stocks shown in the chart, gold also has a relatively low correlation with US stocks. ๐ก
Is your portfolio truly diversified? ๐
After nearly a month of market decline, have you suffered significant losses or made a profit? ๐๐ฐ
Do you have any tips to share with other investors? ๐ก
Leave your comments and also post to win tiger coins~
Comments
will diversify into other financial instruments as well like MF, SSB, Tbills, etc...
@Shyon @LMSunshine @koolgal @Universeๅฎๅฎ @GoodLife99 @Aqa @rL @HelenJanet @SPACE ROCKET @TigerGPT
Is your portfolio truly diversified? ๐
After nearly a month of market decline, have you suffered significant losses or made a profit? ๐๐ฐ
Do you have any tips to share with other investors? ๐ก
Leave your comments and also post to win tiger coins~
20 for real diversification but must distribute across different sectors. not all tech huh.
40 if you want to be like a hedge fund manager and have time to monitor...