My Portfolio Is NOT Diversified!

Almost every professional who advises on money matters will recommend diversification. Diversify, diversify, diversify. You will constantly read and hear about its importance when it comes to money in the stock market and/or any kind of retirement savings. 

One thing you should understand is that my portfolio is NOT properly diversified. 

I do have stocks in different industries (airlines, technology, retail, retail pharmacy, media entertainment, automotive, biotech, and healthcare facilities) but I don’t have

  1. enough industries represented
  2. enough companies within each industry AND
  3. I have way more in some stocks (industries) than others. 

For a properly diversified $300,000 portfolio, I would say I would need to have at least 20 more stocks that would fill in a lot of the gaps I am missing and I would need to have the value of each stock more closely aligned to the others. What I have now is fine for me because I am comfortable with the risk but it probably isn’t diversified enough for any of my readers. 

In other words, for better diversification I SHOULD NOT have $48,000 in Apple and only $9,674 in CVS like I do now. I should also have at least a couple more technology companies and not pin all my hopes on Apple. I should have a couple more retail stocks, healthcare stocks, media type stocks, etc. as well as some stocks in other industries that are not represented. 

Its Hard To Diversify When You Buy Individual Stocks

I first started investing by buying individual stocks and I continue doing it to this day. Thats the way my Dad did/does it and so I followed. But clearly, buying only individual stocks makes if very difficult to diversify your portfolio and it would take a lot of work as well. So much work and research that the average person just doesn’t have the time. 

That is why most financial planners and anyone who makes their living advising others about finances will recommend mutual funds or ETF’s. While I don’t like mutual funds for my own personal reasons, I think ETF’s are a very good option. In fact I have started buying about $4,000 worth of SPY each month for this portfolio and I will continue doing that for another year or so.

Half Way Through 2016 This Is How Much My Stocks Are Down

Through July 8 of 2016 the Dow, Nasdaq, and S&P 500 are all up slightly for the year and my portfolio is down. You can see how much I am down for the stocks I own this year below:

stock performance

When you add in all the dividends I have been paid, the loss shrinks to about $3,734 for the year (I started 2016 with $319,169 and I now have $315,435). Its not great that I lost money while the market has gone up but I had a couple of opportunities to panic sell when the markets tanked and things would be A LOT worse had I done that. 

I would be up if I had stuck everything in SPY or VTI or some other exchange traded fund that mirrors the market and that is why for many investors, market mirroring or industry mirroring ETF’s might be the best choice. Like I said above, I will be adding to my SPY total every month no matter what the market does and I will do it while I continue to look for individual stocks to buy. 

I like buying individual stocks because it is a challenge and it keeps me interested in the market. Over the years I have learned a lot doing it that way but I acknowledge that investing in just individual stocks may not be the best choice for other investors. 

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