I have been thinking about this post for awhile now.
1) The main risk of AIMing individual stocks is that they can go to zero. Even big companies can go bankrupt.
2) Diversifying your holdings are important.
3) You need more diversification than an individual fund will give you.
4) There are two main ways to diversify STYLE (large, small, value, fixed income) and INDUSTRY ( financial, materials, consumer, utilities, medical, etc) Style requires fewer funds.
5) There is a third thing that you can use to diversify and that is time. When you are young and with limited funds, you can decide what you want to own in your account (maybe large value, small value, foreign, REIT, and bonds) and buy one of the funds each year (whichever has done the worst over the past year that you still do not own)
So below I put together a basic portfolio that can be added to over time. You can AIM each fund or you can decide what percentage of each you want to own and rebalance at most once/year (what I call SLOW AIM) Either will work.
IVE large value
IWN small value
EFA foreign
ICF REIT (real estate investment trusts)
TLT bond
To that can be added if you want
Instead of EFA
PIN or EPI INDIA
FXI CHINA
EWZ BRAZIL
EWA Australia
RGLD Gold (an individual stock)
SLW Silver (an individual stock)
SCCO Copper (an individual stock)
IYE Oil
WY Timber (an individual stock) or CUT
IYZ Telocom
IDU Utilities
IBB Biotechnology/medical
RAIL (not sure what to use)
For bonds till interest rates peak again I would use SHY instead of TLT
........................................................
Any body have any thoughts on the above?
In some ways I feel I am fighting the last battle with the gold, silver, copper, oil, and timber. I also feel like I am adding more complications than needed by adding to the basic portfolio.
Toofuzzy
Take the road less traveled. It will make all the difference.
