The Market 2021

Yuma

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Honest question for some of the more seasoned investors. What do you consider a "diversified" portfolio? Is it just a mix of Equity and Fixed Income, is it a mix of multiple sectors (tech, financials, consumer staples etc) or is it a mix of different growth & income? If it is multiple sectors how many different sectors do you like to be spread out amongst?

I am mostly loaded with ETF's in my taxable brokerage account and depend on them for diversification myself but I do like thematic ETFs too. Is there such a thing as being too diverse?
It depends on the ETFs you have. I do see a lot of stock only articles where they say 8-10 stocks in a portfolio are good, since stocks will send you tons of stuff to read to keep up on the companies. I think ETFs are good, and look for the lowest cost ones. So far in my brokerage the ETFs tend to be cheaper than the mutual funds, if you can find all the fees in both of them. You are probably well diversified with your ETFs.
 

elindholm

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Honest question for some of the more seasoned investors. What do you consider a "diversified" portfolio? Is it just a mix of Equity and Fixed Income, is it a mix of multiple sectors (tech, financials, consumer staples etc) or is it a mix of different growth & income? If it is multiple sectors how many different sectors do you like to be spread out amongst?
It depends on what your goals are. If you are content to ride along with the broad market, you can stick with generic mutual funds or ETFs. Especially among mutual funds, there's a lot of overlap in what they hold, within a category: one "balanced growth" fund is going to be pretty similar to another. So you can be set with a few differently-slanted funds that have low expenses. I'm a fan of FSKAX, Fidelity's "Total Market" fund, which charges almost nothing.

If you hold individual stocks, then presumably you're trying to outperform the overall market -- you're hoping to find what investors call "alpha." So then it's a game of how confident you are in your guesses and how much risk you're willing to take on.

I personally am trying to outperform the market a little, and I'm taking on moderate risk. About half of our portfolio is in 40 individual stocks, some of which are themselves quite conservative (Kimberly-Clark, AT&T, Pfizer) but many of which are pretty speculative. The other half is mutual funds, which have a defensive tilt, including 25% in bonds.

You can look at a stock's "beta" to get a sense of how volatile it is. That's a measure of how much it goes up and down compared to the market as a whole; 1.00 is average. KMB, T, and PFE are all 0.75 or less, which basically means they are boring. But you can find some stocks, even big names, that are 1.5 or higher -- Tesla (which we don't own) is at 2.

As for sectors, I look at the S&P 500 as a weighting benchmark and then modify our weightings according to, well, pretty much gut feeling. So for example the S&P is around 14% in healthcare, but I feel like most of that sector is overpriced, so our portfolio is only 9% healthcare. On the other hand, the S&P is less than 3% energy, but I believe that alternative energy still has a lot of growth potential, so we're almost 6% in that sector. (The energy sector in the S&P is mainly fossil fuels, but I'm trying to be ESG-conscious in our portfolio.) I steer away from consumer discretionary because I have a general distrust of that sector, although we hold some, including "quasi-staples" like Goodyear and Hanes (people aren't going to stop needing tires or underwear, and Hanes even pays a solid dividend). I was about to sell Wyndham in the mid $70s, because I felt like it had come as far as it could, but then it cratered, so I'm stuck with it for a while.

One way of thinking about diversification is that, almost always, something somewhere is going up. And often things go up in surges, like a bunch of money will suddenly flow into materials (which is the hot sector right now) for some reason. So if you have a piece of that action, you can be in the right place at the right time.

I force myself to be conservative with the mutual funds because otherwise it's too tempting to keep riding the hot hand everywhere. All good things must come to an end, and you want to be set up so that the next time the market drops 20% -- and make no mistake, it will -- you lose only something like 12-15%.
 
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Zeno

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Good stuff from both Yuma and Elindholm.

My portfolio mostly consists of ETFs--I have a S&P 500 ETF, a small/mid cap ETF, as well as Muni & Corporate bond ETFs--I am thinking of doing an emerging market or global blend ETF eventually. I do have some individual stocks mixed in--I have a plan in place for dividend stocks and they are a long term hold for me. I only chose stocks that have at least 10 consecutive years of dividend increases the consistency was more important to me than immediate yield--they are all going to DRIP until I am 62 then I will start using the dividends as income. I tried to set it up so that I will get monthly dividend payments in retirement, they are all quarterly payouts so I did my research to find ones that pay out the first-second--third month of each quarter. I have some other stocks I buy based on some things I read here and there but my investments there are fairly minimal by comparison.

This is all strictly in my taxable brokerage acct that I am doing unguided--I only put in there what I can after I max out my 401K & Roth. I have a financial advisor for my Roth and my 401K is really limited in fund choices so I don't have to think as much there.
 
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I don't hold any individual stocks in my retirement accounts aside from 5-10% of my employer's stock in my 401K. I only use low cost ETFs or mutual funds with proven track records. I don't mess around with the added business risk of individual stocks in my retirement accounts.

In my taxable accounts I usually have one or two broad market etfs as a foundation and then supplement with sector/industry specific etfs and high conviction individual stocks.

I think you can diversify with as little as 10-12 stocks but most people, me included don't do the required research and reading needed to only rely on so few eggs.

If it's an account that is a small percentage of your investable assets then concentrated positions in that account get diluted when the entirety of your assets are considered. But if you have a large percentage of your investable assets in a handful of companies you are likely taking on too much risk and could benefit from further diversification.

Other things to consider with diversification is US vs international (developed and emerging). Also large cap vs small and mid cap. Growth vs value come into play as well. Throwing everything into an S&P 500 fund is likely good enough 90% of the time and will do better than most strategies an average investor will attempt to implement, but there are times that international outperforms, like after the dot com crash.

Edit: and I didn't even touch on bonds as I am nearly 100% equities, but asset allocation between stocks and bonds usually increases in importance as you get older. With bonds you have to consider term, credit quality, interest rate risk, corporate vs treasuries vs mortgage backed, and also US vs international.
 
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Zeno

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Thanks for all the answers, I tend to overthink things when it comes to the market and money matters. There is a TON of information out there and I read a lot of it but the idea of what is "diversification" is all over the place. I think I am on the right track but only time will tell. I am not a gambler by nature, I tend to play it safe and it probably costs me some potential huge returns but if I can just get steady returns I will be happy.
 

elindholm

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I am not a gambler by nature, I tend to play it safe and it probably costs me some potential huge returns but if I can just get steady returns I will be happy.
This is a good approach. It's easy to get tempted by the success of someone who threw all of their money into the right stock at the right time, but you don't hear about all of the failed cases that balance out that one success. So-called "technical analysis" plays to people's greed, but you have to realize that the market is mainly driven by the super-big money investors, who have gotten where they are by not being emotional about it.
 
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This is a good approach. It's easy to get tempted by the success of someone who threw all of their money into the right stock at the right time, but you don't hear about all of the failed cases that balance out that one success. So-called "technical analysis" plays to people's greed, but you have to realize that the market is mainly driven by the super-big money investors, who have gotten where they are by not being emotional about it.
One of my favorite descriptions of the market is that in the short term it's a voting machine but in the long term it's a weighing machine.

Eventually companies will have to justify their price with revenues and profit. Everyone is drawn in by potential and projections future success. This is a universal truth.

Suns fans know this all too well. The potential of Bender, Chriss, Jackson, an Ayton was extremely alluring. Only Ayton has panned out while the others were strikeouts that set back our franchise.

Meanwhile, Booker, Bridges, and Johnson were thought to have high floors but low ceilings when they were drafted. Booker was a home run, while Bridges and Johnson are solid doubles.
 

Yuma

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Thanks for all the answers, I tend to overthink things when it comes to the market and money matters. There is a TON of information out there and I read a lot of it but the idea of what is "diversification" is all over the place. I think I am on the right track but only time will tell. I am not a gambler by nature, I tend to play it safe and it probably costs me some potential huge returns but if I can just get steady returns I will be happy.
Keeping it simple can work for you. Look for ETFs with low costs but solid histories. Put your money in and don't worry about switching it around a lot. You do not "lose" any money unless you sell your shares. IF the market goes down, it will go back up. You just have to have patience. The only market timing I do, is if you see interest rates going up, or the economy tanking, you could switch money into fixed income funds with decent returns until the economy or market starts riding high again. I only do that if i have profits I can cash in. If I have loses already, I just hold my shares and wait for them to be profitable. Especially if my funds are in a 401(k) or IRA and I am not worried about tax implications. I find keeping it simple works. Warren Buffet, and I am paraphrasing, says stick to what you know. If a trade or strategy is too difficult to understand or doesn't make logical sense to you, you should not do it. Saving is 99% of the battle. You can do this!
 

Bada0Bing

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My goal was 55, to do that I have to retire before my birthday in Nov. My current goal now is 56 if things go well the next year I could do it. I could do it now but too much risk unless we move to a much cheaper country.

The single biggest variable is of course healthcare.

If I could talk to myself a few years ago I would say "don't sell Shopify, don't sell Match" and that alone would have me well ahead would be up 1254% on Match if I still had it. Shopify pretty close to the same thing and I owned more of it. over 23K profit in MTCH if I still owned it, like 30K profit in Shopify. Don't even want to compute how much I actually made, I made money but nothing like 54K combined.
One of the luckiest things I ever did was buy 155 shares of Shopify at $34/share back in 2014. I don't remember why I did it, but I'm glad I did. lol
 

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....for anyone interested in black magic.
 

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This is a good approach. It's easy to get tempted by the success of someone who threw all of their money into the right stock at the right time, but you don't hear about all of the failed cases that balance out that one success. So-called "technical analysis" plays to people's greed, but you have to realize that the market is mainly driven by the super-big money investors, who have gotten where they are by not being emotional about it.


Yep if you were smart enough to go SDOW at the start of Covid you could have made a killing when the market tanked and then played a 3X long DOW etf to double your money on the way back up. But if you were wrong, you could have LOST a ton of money too. It was tough but I just let it ride at that point and came out ahead in the end.
 

Russ Smith

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One of the luckiest things I ever did was buy 155 shares of Shopify at $34/share back in 2014. I don't remember why I did it, but I'm glad I did. lol


Oh sure rub it in (-:

Congrats. I bought it because of Motley Fool stockadvisor. I sold it because that short guy came out and said it was a fake company and I read the report, got nervous and took my gains and sold. And have been kicking myself(wish I could kick the short guy) ever since.

Glad someone made a killing on it! 1441.50 today I won't even begin to attempt the math on how much profit you have!

if my calculator is right you have over 223K!
 

Russ Smith

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One of the luckiest things I ever did was buy 155 shares of Shopify at $34/share back in 2014. I don't remember why I did it, but I'm glad I did. lol
FYI I had 78 shares at just over 41. I sold at 68. I'd have 103,752 now if I had held it!

oh well, live and learn.
 

Bada0Bing

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Oh sure rub it in (-:

Congrats. I bought it because of Motley Fool stockadvisor. I sold it because that short guy came out and said it was a fake company and I read the report, got nervous and took my gains and sold. And have been kicking myself(wish I could kick the short guy) ever since.

Glad someone made a killing on it! 1441.50 today I won't even begin to attempt the math on how much profit you have!

if my calculator is right you have over 223K!
Oh sure rub it in (-:

Congrats. I bought it because of Motley Fool stockadvisor. I sold it because that short guy came out and said it was a fake company and I read the report, got nervous and took my gains and sold. And have been kicking myself(wish I could kick the short guy) ever since.

Glad someone made a killing on it! 1441.50 today I won't even begin to attempt the math on how much profit you have!

if my calculator is right you have over 223K!
Yep I’m an idiot that got lucky. In 2014 I sat next to this guy at work that was into investing. He got me into stocks. I moved some cash around in my IRA and bought some Shopify and some Apple. It was before the Apple Watch came out. I thought for sure Apple was gonna invent the personal health market. They did alright but they have a long way to go.
 

Russ Smith

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Yep I’m an idiot that got lucky. In 2014 I sat next to this guy at work that was into investing. He got me into stocks. I moved some cash around in my IRA and bought some Shopify and some Apple. It was before the Apple Watch came out. I thought for sure Apple was gonna invent the personal health market. They did alright but they have a long way to go.


Wow even better in your IRA it's tax free growth! I had it in my regular etrade account. Stock Advisor was touting them. It just kills me I paid for a service to advise me what to buy, I listened to them and bought it, and then I let some professional short convince me something was amiss with the company and sold. Talk about stupid.
 

Bada0Bing

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Wow even better in your IRA it's tax free growth! I had it in my regular etrade account. Stock Advisor was touting them. It just kills me I paid for a service to advise me what to buy, I listened to them and bought it, and then I let some professional short convince me something was amiss with the company and sold. Talk about stupid.
Yeah there’s nothing amiss. They’re as solid of a company as you can get. Great leadership too. I’ve listened to their ceo on several podcasts. Seems to be the real deal.
 

Russ Smith

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Yeah there’s nothing amiss. They’re as solid of a company as you can get. Great leadership too. I’ve listened to their ceo on several podcasts. Seems to be the real deal.

I buy things online all the time that use Shopify and it's clearly a good company. It was Citron research in 2017 that said it was a scam.
 

Russ Smith

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Looks like a big down open today the markets are all down over 1% in pre market. not totally clear why the economic numbers are actually really good.
 

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Looks like a big down open today the markets are all down over 1% in pre market. not totally clear why the economic numbers are actually really good.

I think big investors and market movers are growing very concerned about inflation. They seem not to be in favor of the Fed’s reluctance to start tapering ASAP. Coupled with the increasing rates of Covid cases, hospitalizations and deaths across the country and in many parts of the world… The market seems to be poised for a drop that many have been expecting for quite some time…
 

Russ Smith

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I think big investors and market movers are growing very concerned about inflation. They seem not to be in favor of the Fed’s reluctance to start tapering ASAP. Coupled with the increasing rates of Covid cases, hospitalizations and deaths across the country and in many parts of the world… The market seems to be poised for a drop that many have been expecting for quite some time…

Right that's what the headlines say but the actual numbers are quite good, last week it seemed prices were higher than expected so we saw a dip, this morning the numbers are saying there's actually less inflation and more growth than expected. Several earnings announcements have surprised to the upside already in this earning season.

Will be interesting to see how it ends up today does the down trend hold or do comments about how positive the numbers actually are have any impact.
 

Zeno

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COVID's recent upswing is stoking market fears all over again. Travel/tourism stocks are getting hammered again today--but everything is on a downward path. Barely anything I own is in the green today.
 
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The most perplexing recent market trend is the continued fall of the 10 year treasury rate. It's now fallen to 1.2% after peaking at the end of March at 1.75%.
 

elindholm

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My guess is that investors are worried about inflation and are interpreting the most recent "not that bad" numbers as spin. One of my alternative energy ETFs is down 12% in a week. The covid resurgence and the problems in/with China are taking their toll also.
 

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DOW down over 700 now. The numbers I saw this morning and the experts said so are actually better than expected considering last weeks numbers that spooked the market.

So I guess we'll see. I do think Covid spooking the market is a little odd, yes the variant is a problem but I don't think it's likely at all there's going to be much if any shutdown as a result because of vaccinations. So it won't really have much impact on opening up. But I think they're doing the math if it's doubling every 10 days, eventually it COULD have an impact on opening.
 

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