A.I.M. Users Bulletin Board

[ls7550]

Great info, thanks ls7550

I may look at doing a few ETF's and a few large mega-caps as well.

Appreciate all the help here as I get started!

Your welcome Jacquespluto

From what I've seen/experienced a diverse handful of multi-national mega-caps does tend to produce a average wider yearly best/worst differential than broader sector ETF's. And the small number of stocks (5) scales up the 'volatility capture' benefits. Typically adding 2%, 3% or even 5% volatility capture reward from a average 50% yearly best/worst differential. For other choices the volatility capture benefits tend to be lower (as low as 0.5%/year ... which barely adds any value after factoring in trading costs).

Price appreciation, dividend income, volatility capture rewards that are more aligned with each other, which in itself is a form of diversification.

BUT you have to be comfortable with 20% single stock risk exposure. When multi-national mega caps however then they can be comparable is scale to countries economies - resilient. 5 stocks, 5 sectors and steering towards equal capital weighting (via periodic rebalancing) is a form of equal weighted stock, equal weighted sectors portfolio ... neutral overall. You'll tend to see however that individually one will do well over time - and be the best performing. However the equal weighting (volatility capture) benefits will typically uplift the collective portfolio rewards to around a comparable reward level, as though all of the others were also pulled up to that higher level of reward. At least that is my experience.

Since the 1980's price appreciation has been pretty good, above average (a reflection of transition from relatively high interest rates down to very low interest rates). More generally (longer term average) you might anticipate around a inflation pacing price appreciation, along with 3% dividends and 3% volatility capture benefits, 6% real (after inflation) type reward. That said if/when interest rates do rise, then that will serve as a drag factor (opposite of how 1980's to recent transition from high to low interest rates provided above average price appreciation). To in part alleviate that risk, stocks/sectors that might do OK/well in a inflationary environment are reasonable choices. I'm not US (London) but if I were (envy your choices) McDonalds wouild be one. During the 2008/9 financial crisis the share price held up very well.

Clive.