I always get the same response when I ask people how well diversified their investment portfolio is. The response - without fail - is something to the effect of 60% Stocks and 40% Bonds. My reply is always the same. That's a great place to start.
But, when I talk diversification, I don't want to see a pie chart that looks like this:
I want to see one that looks like this:
This is what a truly diversified portfolio would look like. The stock portion would be broken down into size, style, sector, etc. Bonds would be broken down by duration, quality, etc. You would have some cash and commodities thrown in as well for hedges. You would look both strategically and tactically. You would consider your time horizon..so on and so forth.
The point is to diversify until you don't think you can anymore..then diversify some more.
Come back tomorrow as I will continue my discussion on diversification and tell you how to do it more effectively.
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