3 mistakes you could be making on the road to diversifying your portfolio


Yesou will often hear that maintaining a diversified mix of investments is your passport to growing your wealth. A diversified portfolio could also protect you against larger than necessary losses during a stock market downturn.

But the last thing you want is to trip yourself up the path to diversification. Here are some mistakes you might end up making.

Image source: Getty Images.

1. Buying so many stocks you can’t track them

Generally, it’s a good idea to own at least a dozen stocks in a few different market sectors. Some experts will tell you that buying between 15 and 30 stocks is the way to go.

But at some point, there is like owning too many different stocks. And while there is no specific limit, let’s just say that if you own 64 different stocks, chances are you have too many.

As a general rule, it’s a good idea to keep an eye on the stocks you own to make sure they’re performing as expected. But it’s a hard thing to do 64 times. And so at some point you have to say enough is enough when it comes to adding stocks to your portfolio.

2. Forget fractional shares

For years, if you wanted to invest in a specific stock, your only option was to buy a whole share of it at a minimum. In some cases, this may have meant saving enough money to swing the stock price and miss lower prices in the process.

These days, however, an increasing number of brokerage accounts offer investors the option of purchasing fractional shares. As the name suggests, with fractional shares you can buy a share of a stock if you can’t vary the cost of a full stock or if you just don’t want to spend so much money on a single action.

So let’s say you want to invest in a company with a current stock price of $1,500. If you only have $500 at your disposal, you don’t have to wait on that stock and risk its price going up. Instead, you could buy a third of a stock and immediately add it to your portfolio.

3. Avoid ETFs

Some people don’t like ETFs or exchange-traded funds because they feel like by buying them they are giving up control over what goes into their portfolios. But ETFs are actually one of the simplest diversification tools available.

When you stock up on ETFs in a broad market, you own a whole bunch of companies with just one investment. But the good thing is that you don’t have to worry about tracking the performance of each company individually – all you have to do is keep an eye on that ETF and make sure it meets its benchmarks. . It’s a simple way to branch out without creating a world of legwork for yourself.

It’s certainly wise to maintain a diversified portfolio during your wealth-building years as well as in retirement. At the same time, it is worth avoiding these mistakes so as not to get lost or lose the opportunity to diversify more easily.

10 stocks we like better than Walmart
When our award-winning team of analysts have investment advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*

They have just revealed what they believe to be the ten best stocks for investors to buy now…and Walmart wasn’t one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

Stock Advisor back as of 02/14/21

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


nasdaq

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button