How to diversify


(Martin) #1

I am looking to buy stocks and will be building up my portfolio for longer term gains.

I am wondering how people on here currently invest their money.

Not necessarily what stocks you are buying but what spread of diversification, if someone is starting to build up a stock portfolio with £500 per month regular savings do you just buy in one company to start with or spread that £500 over 2, 3 or more stocks etc?


(Emma) #2

I’m trying to build a balanced portfolio with stocks spread out over multiple sectors and then some ETFs on top. I’m working with considerably less than £500 but I’ve decided to spread out the purchases so i’ll have a couple for each company or ETF that I’ve decided to invest in, until I’ve got them all. Then monthly i’ll increase the number of shares in each.


#3

Your best starting point will be here and if you scroll down halfway it directly addresses your main question:

Personally, as my pseudonym suggests, I’m currently ETF/Trust only as they’re globally diversified in nature.

Also, an individual’s risk appetite will influence their portfolio composition significantly. So it may well be worth having a think about your own :thought_balloon:


(Martin) #4

I have never invested in ETF I assume with these you get a dividend return? And if so how is the dividend calculated as they hold various companies within them?


(Martin) #5

How many companies are you currently purchasing shares in?

I was thinking of starting to build with maybe 3 maximum 4 companies at the moment I will I have sufficient investment in them and then look to add others


#6

Yes. In the stock universe right now, there are 2 ETFs (IUKD UKDV) dedicated to dividends which I encourage to research into their factssheets/KIDs if dividend income is what you’re interested in:


Dividends distributed is probs a weighted average of the basket of stocks held.

Others in the community who hold these will be better able to share their rationale for doing so as for me dividends are incidental and not really part of my investment strategy going forward.


(Emma) #7

I currently have 8. Thinking about 15 overall when I’m done and US stocks are added. About 10 will be core banking, utility, mining etc split between U.K. and US and then 5 because I like the look of them.
Hard not to get carried away though when new things are added. I suffer from ‘oh, it’s new, I want it now’ syndrome :grin:


(Martin) #8

What is your investment strategy, to increase share price and sell?

Looking for all options and ideas for myself


#9

It’s early days for me to detail my strategy here given I’m a relatively new, young investor but I have my own private framework that’s is across asset classes & platforms. Super basically, it’s buy, build & hold for 10+ yrs.
Regarding dividends being incidental, it’s because they don’t guide my investing decisions and will be reinvested should I receive any.

@weenie detailed her strategy here in the community for example.

@Vlad has a strategy that appears more geared to high growth that he may repeat here for you.


(Vladislav Kozub) #10

Throwing my two cents. Just as @Diversify correctly pointed out, dividends are of no essence to me. I deliberately go with growth, mostly tech biased (about 50% of the portfolio). I was quite surprised to have gained 0.7% yearly dividend yield, expected about 0.

Yet, I am not much into ETFs and mutual funds, simply 100% individual US stocks (excluding my current Freetrade portfolio) by doing my own due diligence and picking. Whilst I am currently beating the benchmark (S&P 500), I am certain that it probably will not be sustainable in long-run. After all, about 90% individuals and institutions fail to outperform the market, and once I realise I am one of those, I will switch 50% MSCI World and 50% S&P 500 ETF forever.

At the moment, I just enjoy the experience of stock picking, which people often tend to do until they realise how ineffective that is. And even having read books and articles about index funds beating almost any investment strategy, I am just one of those stubborn ones that will only believe after failing :slight_smile:


(Jim) #11

This snippet from The Sunday Times today illustrates the impact that reinvesting dividends can have:


(Martin) #12

That’s good viewing I think.

As I will be just starting to build my portfolio my biggest decision is how best to start investing my monthly amount, into what companies etc.

But on a previous post I seen of the UK companies paying dividends one of them are paying over 9% that seems great for me once I do some additional checks


#13

Yes! This is one of the hardest investing truths to take on board. It seems totally intuitive to us that we’d be good at investing because we all feel like we are smart and unlikely to act irrationally.

And conversely, other factors generally seem a bit counter-intuitive: that there can be a big difference between a good company and a good stock (eg compare Apple and Blackberry in 2017). That the market is made up of clever people and fast algorithms and so is quite hard to outperform long term. That logically the theoretical average investor should get the benchmark’s performance (because each trade is made up of a buyer and a seller), but after transaction costs they’ll get less. That thanks to loss aversion, it’s actually rather hard to stay the course/buy the dip when the market is dropping. Etc.

And, I hope, also X% in a minimum risk asset like gov bonds, the X% reflecting your attitude/appetite/need for risk? :smile:


(Vladislav Kozub) #14

Hell no! I am allergic to bonds and gilts!

I also believe that with a steadily increasing life expectancy, it will be absolutely acceptable to keep 100% in stocks even after retiring. I would be surprised if by 2050 we will not live for 100-120 years. This ultimately makes that “100% less age for stocks’ allocation” rule obsolete. Even taking 90 years’ life into account, it is 33 years after the retirement age of 57 - plenty of time to live through the market fluctuations without turning to bonds.


#15

How interesting.

Certainly true that longer retirements are a funding challenge. By 2066, “cohort life expectancy at birth in the UK is projected to reach 98.1 years for females and 96.1 years for males [… and] 50.0% of new born baby girls and 44.2% of new born baby boys are projected to live to at least 100 years old”… mind you life expectancy has flattened in the last couple of years, so I don’t think we’ll get to 120 year expectancies as soon as that. My state pension age is 67, and ONS’s current guess of my cohort’s life expectancy is 86. I am not 100% in stocks.

But anyway none of that affects your point: for you, X% is 0%.

(ps: bonds sometimes do ok :smile:)


(Alex Sherwood) #16

I listened to this yet but it sounds like it could be pretty interesting -

https://www.bloomberg.com/news/articles/2018-10-25/the-etf-story-podcast-episode-1-black-monday


(Emma) #17

Wasn’t a bad listen that, cheers. Although I’m not sure the thinkness of the report deserved several minutes discussion. Hopefully I remember to listen to the next 5 parts :grin: