Comments on: How Much Diversification is Enough?

By: Blake@youngdough

Blake@youngdough — Thu, 07 Aug 2008 02:57:39 +0000

Yeah, there are a lot of ways to look at foreign investments, but as long as your picking smart investments and not putting too much of your money in any one area, you should be fine.

Thanks for clarifying.

By: MoneyEnergy

MoneyEnergy — Tue, 05 Aug 2008 16:11:42 +0000

Good questions, Blake… I didn’t specify that enough. I was unconsciously assuming that the majority of those stocks would be North American (most of my readers are North American), and that foreign would mean largely, wholly, operating outside the U.S. and Canada. But it’s a good point because many U.S. companies are quite multi-national and as far as diversification is concerned, could be treated as foreign content. So it’s up to the individual to balance this out. I think I would want to make sure that I had at least a good third of my portfolio in foreign content, however that is derived.

By: Blake@youngdough

Blake@youngdough — Tue, 05 Aug 2008 12:58:05 +0000

Does your ‘foreign’ category refer to companies whose business is relatively unaffected by our economy here in the states?

Do your other categories have to be US companies, or can they be international companies who have large global exposures? Just wanted to double check, as buying a US automaker over Honda or Toyota just because they are ‘foreign’ seems foolish (unless you plan on a HUGE turnaround).

Just want to make sure I’m reading this right. :D

By: TopForeignStocks

TopForeignStocks — Fri, 01 Aug 2008 23:15:59 +0000

Always a better and safe idea to have
many stocks in a portfolio even if it means
about $500 in each stock.Diversification
is the most important thing nowadays.

By: MoneyEnergy

MoneyEnergy — Tue, 29 Jul 2008 17:42:59 +0000

That’s a good way of looking at it. So for some people, 10 stocks might be a good benchmark to start with – it certainly keeps the math easy. So with 20 stocks, each stock is worth only 5% of your portfolio (assuming equal amounts in each) and if it drops 50%, your portfolio would be down about only 2.5% (assuming your other stocks stayed flat, of course, which they rarely do).

So one of the worst-case scenarios with a 20-stock portfolio is that if one stock totally crashes, at most you lost 5% of the whole portfolio. You can see, then, that even if you own 100 stocks, at most you’re in for a total crash-loss of 1%.

By: double

double — Tue, 29 Jul 2008 17:24:48 +0000

Everytime I try to trade a portfolio of less than 10 stocks, I get mixed results. Five Etf’s would be better than trading five stocks because you get diversification in the Etf.

However, I prefer to have a 10 stock portfolio because each stock is worth 10% of your portfolio and if one stock drops 50% (has happened to me), your port will drop 5% (though disturbing, but better than a 10% drop if you have a 5 stock portfolio).