How Many Stocks Should You Own to Achieve Diversification?
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
Correlation among US assets and International stocks (1970-2017)
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~
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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...
$Invesco NASDAQ 100 ETF(QQQM)$
$SPDR Portfolio S&P 500 Growth ETF(SPYG)$
$
Tech stocks, Healthcare, Semiconductors, Bank, Automobile, ETF and dividend stocks. You may end up losing more if you have 25 stocks to monitor and pump in. Just for for secured stocks such as Tesla, Microsoft, Google, Apple, BrkA n B.
๐๐๐As a small retail investor with limited funds, I must confess that I believe the best way to diversify in stocks is through ETFs. With ETFs, especially Index ETFs, I have the power of many stocks versus buying single stocks.
With this strategy, I minimise the risks that are specific to individual stocks which maybe impacted by negative news and let the ETFs do the heavy lifting by selecting the best stocks and weeding out the non performing ones.
Take for example $SPDR Portfolio S&P 1500 Composite Stock Market ETF(SPTM)$ which is a low cost ETF that represents 90% of the investable US stocks. SPTM consists of stocks included in the S&P500 Index, the S&P Mid cap 400 Index and the S&P500 Small Cap 600 Index - that is 1500 stocks in just 1 trade!
The Top 10 holdings include the Magnificent 7 - $Apple(AAPL)$
SPTM pays dividends every 3 months. The current dividend yield is 1.35%. It has a low expense ratio of only 0.03%.
Performance wise SPTM is up 2.4% in the past 5 days and has risen 12% year todate. In 223, SPTM has increased by 18%. However if we look further back, SPTM has jumped 81.8% in the past 5 years. Since its inception in October 2000, SPTM is up 328%!
Investing does not have to be complicated. Just buy SPTM and let the magic of compounding happen.
@Tiger_comments @TigerStars
10 UT and 2-4 are extremely high risk ie individual country.
6 US stocks with Tiger is just โfor funโ as big holding is ESPP.