131

So, you have a portfolio of around 50k, and you're wondering whether you should change it. The question I always ask myself in this kind of situation is: If someone gave you 50k today, how would you invest it? If the answer is "I would put 46% into this one stock, and the remaining 54% into others" then there is your answer. If you would buy a different ...


47

I am voting you up because this is a legitimate question with a correct possible answer. Yes, you shouldn't buy penny stocks, yes you shouldn't speculate, yes people will be jealous that you have money to burn. Your question: how to maximize expected return. There are several definitions of return and the correct one will determine the correct answer. ...


28

"Diversified" is relative. Alfred has all his money in Apple. He's done very well over the last 10 years, but I think most investors would say that he's taking an incredible risk by putting everything on one stock. Betty has stock in Apple, Microsoft, and Google. Compared to Alfred, she is diversified. Charlie looks at Betty and realizes that she is ...


23

Hedging - You have an investment and are worried that the price might drop in the near future. You don't want to sell as this will realise a capital gain for which you may have to pay capital gains tax. So instead you make an investment in another instrument (sometimes called insurance) to offset falls in your investment. An example may be that you own ...


17

If you want to put in $1000 into penny stocks, I wouldn't be calling that investing but more like speculation or gambling. You might have better odds at a casino. If you don't have much money at the moment to invest properly and you are just starting out as an investor, I would spend that $1000 on educating yourself so that by the time you have more money ...


17

Is it POSSIBLE? Of course. I don't even need to do any research to prove that. Just some mathematical reasoning: Take the S&P 500. Find the performance of each stock in that list over whatever time period you want to use for your experiment. Now select some number of the best-performing stocks from the list -- any number less than 500. By definition, ...


14

When you invest in a single index/security, you are completely exposed to the risk of that security. Diversification means spreading the investments so the losses on one side can be compensated by the gains on the other side. What you are talking about is one thing called "risk apettite", more formally known as Risk Tolerance: Risk tolerance is the ...


14

Having cash and bonds in your portfolio isn't just about balancing out the risk and volatility inherent in equities. Consider: If you are 100% invested in equities and the market declines by 30%, you'll be hard pressed to come up with additional money to "buy low". You'll miss out on the rebalancing bonus. But, if you make a point of keeping some portion of ...


13

Before you buy a stock (or anything else to be honest) you should have an entry and an exit criteria set. These criteria should be based on a calculated metric rather than a fixed number or a subjective or emotive reason. The metric may be related to an ethical measure such as level of commitment to reducing plastic waste but should be consistently ...


12

To a certain extent, small cap companies will in general follow the same trends as large cap companies. The extent of this cointegration depends on numerous factors, but a prime reason is the presence of systemic risk, i.e. the risk to the entire market. In simple terms, sthis is the risk that your portfolio will approach asymptotically as you increase its ...


12

The reason diversification in general is a benefit is easily seen in your first graph. While the purple line (Betterment 100% Stock) is always below the blue line (S&P), and the blue line is the superior return over the entire period, it's a bit different if you retired in 2009, isn't it? In that case the orange line is superior: because its risk is ...


12

It depends on what you mean by "the real estate market". If you consider that REITs distribute income from real estate lease income and property appreciation, you could say that REITs are the real estate market. Property value appreciation varies greatly from location to location, so REITs should represent a broad overall average. As far as correlation ...


12

In addition to the other helpful answers here, I think a practical consideration/caution is in order. Rebalancing is a good idea in general, but it does have costs. Every time you make a transaction with a stock or fund, you incur costs - whether in the transaction itself (commission) or in taxes/etc. That's not to say you shouldn't do it - having one ...


11

Diversification is spreading your investments around so that one point of risk doesn't sink your whole portfolio. The effect of having a diversified portfolio is that you've always got something that's going up (though, the corollary is that you've also always got something going down... winning overall comes by picking investments worth investing in (not to ...


9

There's a grey area where investing and speculating cross. For some, the stock market, as in 10% long term return with about 14% standard deviation, is too risky. For others, not enough action. Say you have chosen 10 penny stocks, done your diligence, to the extent possible, and from a few dozen this is the 10 you like. I'd rather put $100 into each of 10 ...


9

What is the advantage of something like Betterment -- which diversifies my investments for me but also charges a fee -- if I can just buy SPY on Robinhood for no fees and do better? Because Betterment is more diversified than the S&P, glaringly when it comes to non-US investments. The US's economy is huge. It represents 22% of nominal global GDP and ...


8

If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock. This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks. Conclusion: After purchasing 6-8 stocks, ...


8

Stocks, Bonds, Bills, and Lottery Tickets notes the work of Fama and French who researched the idea of a small-cap premium along with a value premium that may be useful to note in terms of what has outperformed if one looks from 1926 to present. Slice and dice would also be another article about an approach that over weights the small-cap and value sides of ...


8

This is Ellie Lan, investment analyst at Betterment. To answer your question, American investors are drawn to use the S&P 500 (SPY) as a benchmark to measure the performance of Betterment portfolios, particularly because it’s familiar and it’s the index always reported in the news. However, going all in to invest in SPY is not a good investment strategy—...


7

Others have made excellent suggestions; one thing I would add - and this cannot be understated - is to assess your risk tolerance. We tend to think of investing as a purely rational and financial decision, yet myself and so many others, when times get tough, make emotional decisions. Doing a risk tolerance test (as honestly as possible) will help you ...


7

If you have just started an IRA (presumably with a contribution for 2012), you likely have $5000 in it, or $10,000 if you made a full contribution for 2013 as well. At this time, I would recommend putting it all in a single low-cost mutual fund. Typically, mutual funds that track an index such as the S&P 500 Index have lower costs (annual expense fees)...


7

Most people advocate a passively managed, low fee mutual fund that simply aims to track a given benchmark (say S&P 500). Few funds can beat the S&P consistently, so investors are often better served finding a no load passive fund. First thing I would do is ask your benefits rep why you don't have an option to invest in a Fidelity passive index fund ...


7

The difference is in the interrelation between the varied investments you make. Hedging is about specifically offsetting a possible loss in an investment by making another related investment that will increase in value for the same reasons that the original investment would lose value. Gold, for instance, is often regarded as the ultimate hedge. Its value ...


7

For most people, you don't want individual bonds. Unless you are investing very significant amounts of money, you are best off with bond funds (or ETFs). Here in Canada, I chose TDB909, a mutual fund which seeks to roughly track the DEX Universe Bond index. See the Canadian Couch Potato's recommended funds. Now, you live in the U.S. so would most likely ...


7

You need to hope that a fund exists targeting the particular market segment you are interested in. For example, searching for "cloud computing ETF" throws up one result. You'd then need to read all the details of how it invests to figure out if that really matches up with what you want - there'll always be various trade-offs the fund manager has to make. ...


7

Is this true? The answer is not a simple yes or no. It's like asking if all other colas are better than Pepsi. There are hundreds of international markets and thousands of funds that target those markets, so even if on average all international funds performed worse than all US funds over the past 100 years, it does not mean that you should not invest in ...


7

It varies. Depending on your brokerage, they may charge you per transaction, so the more transactions, the higher the cost. Though this (from what I've seen), is uncommon with many index funds. In terms of how aggressive you want to be with your investment varies on your comfort with risk, timeline of investment and many other factors beyond the scope of ...


6

The two biggest issues that impact your question I would say are diversification and fees. If you have $10,000 to invest and only invest it in two securities, then a 20% drop in one security can have you lose 10% of your initial investment which I would consider a very high risk scenario. If you have $10,000 to invest and invest it in 20 securities, then a ...


6

Having worked for a financial company for years, my advice is to stay away from all the "Freedom Funds" offered. They're a new way for Fidelity to justify charging a higher management fee on those particular funds. That extra 1% or so a year is great for making the company money; it will kill your rate of return over the next 25+ years you're putting money ...


6

"shouldn't withdraw stock investments for at least 5 years" would be better re-phrased as: "don't invest money in stocks if you (really) need it within next few years". The underlying principle is: stocks are one of the higher-risk investment classes out there. While that's exactly what you want over a long time horizon (longer than the ebb and flow of the ...


Only top voted, non community-wiki answers of a minimum length are eligible