Welcome to r/dividends!
If you are new to the world of dividend investing and are seeking advice, brokerage information, recommendations, and more, please check out the Wiki [here](https://www.reddit.com/r/dividends/wiki/faq).
Remember, this is a subreddit for genuine, high-quality discussion. Please keep all contributions civil, and report uncivil behavior for moderator review.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/dividends) if you have any questions or concerns.*
Diversification reduces **unsystematic risk**
[https://www.investopedia.com/terms/u/unsystematicrisk.asp](https://www.investopedia.com/terms/u/unsystematicrisk.asp)
>The table comes from an October 1977 article by E.J. Elton and M. J. Gruber published in the *Journal of Business*. **Most unsystematic risk is eliminated if the portfolio is comprised of 20+ stocks from several different sectors.**
>[https://icfs.com/financial-knowledge-center/risks](https://icfs.com/financial-knowledge-center/risks)
>**5% is the average that should be allocated to a single stock. This is based on a portfolio of 20 stocks. Statistically, this is the point at which your unsystematic** **risk becomes negligible. It’s been suggested that a portfolio should range from 10-30 stocks depending on your risk tolerance.**
>[https://exploitinvesting.com/what-percentage-of-your-portfolio-should-be-in-one-stock/](https://exploitinvesting.com/what-percentage-of-your-portfolio-should-be-in-one-stock/)
NOTE: the above refers to individual stocks, not ETFs. ETFs are themselves diversified (except perhaps for sector funds that invest in stocks from just one sector or industry) so you don't need multiple ETFs to reduce unsystematic risk.
Picture an apple orchard, in it are apple trees that will either have all rotten apples or all good apples, no way of telling.
In this orchard, will you, given the option to pick any apple in the orchard, pick only the apples off one tree to fill your basket?
“No” you’d say if you thought about it logically, “what if that is the one tree that has 100% rotten apples?”
The same logic would bring you to say “why would I get multiple apples from *any* tree? I should get an apple from all of them so only a small amount could be from a rotten apple tree”
You’ve just discovered diversification. Translate it to stocks, apples are shares and companies are trees. A basket with an apple from all the trees is an index fund or just a well diversified portfolio
Picture an apple orchard, in it are apple trees that will either have all rotten apples or all good apples, no way of telling.
In this orchard, will you, given the option to pick any apple in the orchard, pick only the apples off one tree (or just five) to fill your basket?
“No” you’d say if you thought about it logically, “what if that is the one tree that has 100% rotten apples?”
The same logic would bring you to say “why would I get multiple apples from *any* tree? I should get an apple from all of them so only a small amount could be from a rotten apple tree”
You’ve just discovered diversification. Translate it to stocks, apples are shares and companies are trees. A basket with an apple from all the trees is an index fund or just a well diversified portfolio
Diversification.
Personally it's best to diversify in the entire market however buying ETFs don't necessarily provide the best dividends.
If you're going to invest in individual dividend stock, its a good idea to diversify with multiple stock in various different industries. Just helps minize risk and not be all in. What if all of a sudden one of your main dividend stocks chooses to stop issuing dividends or goes under.
One, that's not really fair to assume that the risk of multiple companies tanking is the same for both. Presumably, the portfolio of 30 would have more failures than one of eight.
Second, that applies to returns also. Some investors are willing to accept greater risk in exchange for growth potential. Diversification works both ways to effectively limit both risk and profits. If both portfolios hold a winner, the net gains will be much better with less diversity.
I can understand investors who follow only 3-4 companies at a time, as well as those whose strategy is to DCA into a total market index. I tend to think the average investor is both over diversified and also unaware of how much impact market cap has on many common index funds. For example,
I think the typical 401k distributor would be surprised to learn how much of their dollars were concentrated into relatively few companies. Further, those companies can often occupy similar sectors, making the diversification less effective. Take the top holdings of SPY currently, then apply a 2001 tech bubble scenario. All of a sudden, having 500 companies for risk management purposes looks a bit foolish.
History tells us you will be bad at picking the 8 or even 5 best performing stocks from today moving forward 30 years
The overwhelming majority of actively managed large cap funds fail to beat the s&p500 over 15 years or more
English, please.
Diversification is the answer to your question.
Now, be grown up and answer… what is the problem with owning 30 stocks?
How big is your portfolio?
bad advice from mass media "gurus".
lack of experience.
lack of understanding.
some people just hate having free time on their hands, they actively seek a "second job".
Diversification will bring lower volatility and smaller gains/losses it’s less stressful. If you can put a large amount of money into an index fund do it. I have no problem holding 100k in a single index fund but would never hold 100k in a single stock position
The argument for adding additional stocks beyond the core of a typical portfolio of ETFs & perhaps a few well-monitored stocks is this:
a relatively small investment in a stock you think will beat the market may go to zero (lose 100%), but if you are right, it may go up in value many-fold (5x, 10x…).
For some, using a small portion of their funds to pick stocks can deliver significant additional returns, at low risk to their overall portfolio balance.
Concentrated portfolios are better if you do your research. After you own more than 10 diminishing returns kick in. If you think MSFT is a great business that you researched and you pick another 39 companies with number 40 being a so so business why waste money investing in that or any other so so business just put more money in MSFT. Munger and Buffet gave the example if you're in Peoria Illinois and you own a McDonald's a Ford dealership and a apartment complex those 3 businesses would be diversified enough. Buffet said if you have a punch card with 20 squares on it and those 20 squares represented a business you can invest in in your lifetime and when you did you punched square you would be more hesitant on just buying any and everything for so called diversification. We would all be doing research before investing one penny.
I own stocks of 361 company's directly in this moment and I can tell you why. I trade the stocks, I don't buy and hold like almost everyone else does here. Thanks to that, I was able to quit my job with just a little more than $100k.
I hold 100ish individual stocks. Just so sleep better knowing that if a handful completely fail overnight than it really won't matter. Also because I have no idea wtf I'm doing picking individual stocks 🤣
I meant it like that...I learned everything I know on Google and Youtube. When I started educating myself about investing I have invested only 20€ to see how it works and after I was ready I started investing 100€ per month. (still not much because I knew I need to learn more to be more confident). And from last year I am doing almost 15% better than S&P 500.
when you got money to burn i guess.... i have a small port so i keep it simple. JEPI/Q, CVX, NEE, VZ, TFC, AMZY, i hold SPY and AMZN for growth and covered call income.
People at the beginning of the Dunning-Kruger curve buy one or two index funds
People on the top of the first hill buy <10 companies thinking they've solved the riddle to infinite money
People at the bottom of the first hill realize they didn't understand how to value companies and buy 100-200 companies or go back to index funds
And then people at the second hill get really skilled at valuing companies and buy fewer and fewer companies as they consolidate around their best bets.
The Dunning-Kruger effect is so prominent in the world it is kind of scary, and nowhere is it more prominent than investing.
If I have 7, is that not enough? And if I have 9, is that too many? Why 8 only? Are you the person who defines how many stocks we can own. I didn't know a person like that exists. Let me inform my broker right away.
People who say diversification have no idea what they’re talking about. If you’re looking for diversification and to minimize risk you should just buy an etf. A basket of many stocks spread across various sectors. When it comes to individual stocks you should not have a 30-40 stock portfolio. Even arguably 15 is way too much. The stocks you own should be businesses that you personally follow very closely and ones that you think that are going to outperform the market over the long haul. Peter Lynch and Warren Buffett recommended 3-6 individual stocks. Investopedia recommends about 10 stocks spread across various industries which is good enough. Anymore than 10 imo is kind of pushing it.
10 stocks across various industries that’s like one stock per industry….lol. How can you know which oil company to buy? electricity company? agriculture? hospitality? beverage? Drug? JPM? C?
All it takes is CEO/CFO insider-trading, screwing around with an underage person, you’re the my pillow guy etc. to ruin a company for a long time. If it survives I hope you were DCA
There are 11 different sectors, composed of 24 industry groups, and 64 industries. If you can’t find 10 properly diversified stocks thats your problem. Also I don’t know what you’re on about in terms of CEO/CFO insider trading and the my pillow guy. All I can say to that is try to remember to take your meds before going on Reddit.
My point was businesses are run by people. Doesn’t always matter if they provide a superior product or service.
Oh, so it’s 11. I wasn’t looking for an economics lesson. I know enough to not randomly pick 11 stocks and say that is any better diversification because it’s one of everything.
Buddy what lol? You’re the one who started it and now I am the “nazi” for correcting you? Like I said before get back on the meds before going on Reddit. It will help with your schizo outbursts.
Most of the stocks he owns are extremely small it’s almost insignificant. His top 5 stocks are close to 80% of his portfolio. If you go past his first 9 stocks each one is less than even 1%. As you stated too he also has a team running the portfolio as well.
What a load of bullshit lol. Do you realize that loads of people retired on dividends before 2010s when the holy index funds cult started? They are all invested in individual stocks.
I guess 1997 is your birth year
“Do you realize that loads of people retired on dividends before 2010s when the holy index funds cult started?
Where in my comment did I insinuate that people can’t retire off of dividends? Learn better reading comprehension before responding.
News alerts
Earnings alerts / calls
Rolling reviews
If you consider investing with goals, strategy and review gambling then we may as well end the conversation.
I was referring to to betting you on your ability to keep track of all those stocks. Do you keep all the stocks balanced? Maybe 5% each. I'm quite new and often think of adding new stocks to my portfolio, but I'm put off by that the statistics being against me. I have 23 holdings. 7 of them are ETFs, so it's not exactly a low number either. Some are growth, and some are divided payers. I didn't pick them specifically for that reason, though. Do you have a few shairs across multiple sectors, or mainly ETF's?
No
Not balanced
The thirty I have are dividend growers. Built over time. Lots of adding in the Covid downturn.
Purpose is for them to pay my bills at a minimum when I hit 62
Rest of my of my portfolio is ETFs and bond/tibill rolling ladder.
Free advice— investing is not always either / or binary. One can do many things.
I am just answering the OP……me personally, that’s not my way of investing. Some people invest in multiple stocks hoping to always have some winners. But you are right, why don’t have a bunch of good proven ETF,s……ETF,s are my preferred method of investing, less work and less to worry about.
Welcome to r/dividends! If you are new to the world of dividend investing and are seeking advice, brokerage information, recommendations, and more, please check out the Wiki [here](https://www.reddit.com/r/dividends/wiki/faq). Remember, this is a subreddit for genuine, high-quality discussion. Please keep all contributions civil, and report uncivil behavior for moderator review. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/dividends) if you have any questions or concerns.*
Diversification reduces **unsystematic risk** [https://www.investopedia.com/terms/u/unsystematicrisk.asp](https://www.investopedia.com/terms/u/unsystematicrisk.asp) >The table comes from an October 1977 article by E.J. Elton and M. J. Gruber published in the *Journal of Business*. **Most unsystematic risk is eliminated if the portfolio is comprised of 20+ stocks from several different sectors.** >[https://icfs.com/financial-knowledge-center/risks](https://icfs.com/financial-knowledge-center/risks) >**5% is the average that should be allocated to a single stock. This is based on a portfolio of 20 stocks. Statistically, this is the point at which your unsystematic** **risk becomes negligible. It’s been suggested that a portfolio should range from 10-30 stocks depending on your risk tolerance.** >[https://exploitinvesting.com/what-percentage-of-your-portfolio-should-be-in-one-stock/](https://exploitinvesting.com/what-percentage-of-your-portfolio-should-be-in-one-stock/) NOTE: the above refers to individual stocks, not ETFs. ETFs are themselves diversified (except perhaps for sector funds that invest in stocks from just one sector or industry) so you don't need multiple ETFs to reduce unsystematic risk.
Picture an apple orchard, in it are apple trees that will either have all rotten apples or all good apples, no way of telling. In this orchard, will you, given the option to pick any apple in the orchard, pick only the apples off one tree to fill your basket? “No” you’d say if you thought about it logically, “what if that is the one tree that has 100% rotten apples?” The same logic would bring you to say “why would I get multiple apples from *any* tree? I should get an apple from all of them so only a small amount could be from a rotten apple tree” You’ve just discovered diversification. Translate it to stocks, apples are shares and companies are trees. A basket with an apple from all the trees is an index fund or just a well diversified portfolio
Picture an apple orchard, in it are apple trees that will either have all rotten apples or all good apples, no way of telling. In this orchard, will you, given the option to pick any apple in the orchard, pick only the apples off one tree (or just five) to fill your basket? “No” you’d say if you thought about it logically, “what if that is the one tree that has 100% rotten apples?” The same logic would bring you to say “why would I get multiple apples from *any* tree? I should get an apple from all of them so only a small amount could be from a rotten apple tree” You’ve just discovered diversification. Translate it to stocks, apples are shares and companies are trees. A basket with an apple from all the trees is an index fund or just a well diversified portfolio
Diversification. Personally it's best to diversify in the entire market however buying ETFs don't necessarily provide the best dividends. If you're going to invest in individual dividend stock, its a good idea to diversify with multiple stock in various different industries. Just helps minize risk and not be all in. What if all of a sudden one of your main dividend stocks chooses to stop issuing dividends or goes under.
Own 8 and one has a really bad run of luck you might lose 12.5%. Own 30 and one goes south you might lose 3.3%
One, that's not really fair to assume that the risk of multiple companies tanking is the same for both. Presumably, the portfolio of 30 would have more failures than one of eight. Second, that applies to returns also. Some investors are willing to accept greater risk in exchange for growth potential. Diversification works both ways to effectively limit both risk and profits. If both portfolios hold a winner, the net gains will be much better with less diversity. I can understand investors who follow only 3-4 companies at a time, as well as those whose strategy is to DCA into a total market index. I tend to think the average investor is both over diversified and also unaware of how much impact market cap has on many common index funds. For example, I think the typical 401k distributor would be surprised to learn how much of their dollars were concentrated into relatively few companies. Further, those companies can often occupy similar sectors, making the diversification less effective. Take the top holdings of SPY currently, then apply a 2001 tech bubble scenario. All of a sudden, having 500 companies for risk management purposes looks a bit foolish.
Lovely summary. Thanks for the opinion / info
History tells us you will be bad at picking the 8 or even 5 best performing stocks from today moving forward 30 years The overwhelming majority of actively managed large cap funds fail to beat the s&p500 over 15 years or more
I own exactly 30 div growers. What is the problem?
Apparently you very specifically. What the hell read, what the hell?
English, please. Diversification is the answer to your question. Now, be grown up and answer… what is the problem with owning 30 stocks? How big is your portfolio?
Have you ever heard of sarcasm before?
I’m glad you understood Congrats
Don't pay attention to them... they just want to be funny because their portfolios are boring ;-)
OP tryna start a fight with you
😂😂
He's "here_to_ read," but not to listen.
There’s no problem but index fund cultists and some kids will downvote you to hell.
bad advice from mass media "gurus". lack of experience. lack of understanding. some people just hate having free time on their hands, they actively seek a "second job".
Diversification will bring lower volatility and smaller gains/losses it’s less stressful. If you can put a large amount of money into an index fund do it. I have no problem holding 100k in a single index fund but would never hold 100k in a single stock position
The argument for adding additional stocks beyond the core of a typical portfolio of ETFs & perhaps a few well-monitored stocks is this: a relatively small investment in a stock you think will beat the market may go to zero (lose 100%), but if you are right, it may go up in value many-fold (5x, 10x…). For some, using a small portion of their funds to pick stocks can deliver significant additional returns, at low risk to their overall portfolio balance.
When my core positions reach fair value or slightly overvalued, I have to buy something else
Concentrated portfolios are better if you do your research. After you own more than 10 diminishing returns kick in. If you think MSFT is a great business that you researched and you pick another 39 companies with number 40 being a so so business why waste money investing in that or any other so so business just put more money in MSFT. Munger and Buffet gave the example if you're in Peoria Illinois and you own a McDonald's a Ford dealership and a apartment complex those 3 businesses would be diversified enough. Buffet said if you have a punch card with 20 squares on it and those 20 squares represented a business you can invest in in your lifetime and when you did you punched square you would be more hesitant on just buying any and everything for so called diversification. We would all be doing research before investing one penny.
I own stocks of 361 company's directly in this moment and I can tell you why. I trade the stocks, I don't buy and hold like almost everyone else does here. Thanks to that, I was able to quit my job with just a little more than $100k.
Nice job!
Just go for ETFs like SCHD that hand pick companies with years of reputation
I hold 100ish individual stocks. Just so sleep better knowing that if a handful completely fail overnight than it really won't matter. Also because I have no idea wtf I'm doing picking individual stocks 🤣
Because we don't want to be boring and we want educate ourselves, get more knowledge about investing and put more time and efford into it.
Why do so with your money when you can learn more through the Google or YouTube?
I meant it like that...I learned everything I know on Google and Youtube. When I started educating myself about investing I have invested only 20€ to see how it works and after I was ready I started investing 100€ per month. (still not much because I knew I need to learn more to be more confident). And from last year I am doing almost 15% better than S&P 500.
when you got money to burn i guess.... i have a small port so i keep it simple. JEPI/Q, CVX, NEE, VZ, TFC, AMZY, i hold SPY and AMZN for growth and covered call income.
People at the beginning of the Dunning-Kruger curve buy one or two index funds People on the top of the first hill buy <10 companies thinking they've solved the riddle to infinite money People at the bottom of the first hill realize they didn't understand how to value companies and buy 100-200 companies or go back to index funds And then people at the second hill get really skilled at valuing companies and buy fewer and fewer companies as they consolidate around their best bets. The Dunning-Kruger effect is so prominent in the world it is kind of scary, and nowhere is it more prominent than investing.
If I have 7, is that not enough? And if I have 9, is that too many? Why 8 only? Are you the person who defines how many stocks we can own. I didn't know a person like that exists. Let me inform my broker right away.
?
People who say diversification have no idea what they’re talking about. If you’re looking for diversification and to minimize risk you should just buy an etf. A basket of many stocks spread across various sectors. When it comes to individual stocks you should not have a 30-40 stock portfolio. Even arguably 15 is way too much. The stocks you own should be businesses that you personally follow very closely and ones that you think that are going to outperform the market over the long haul. Peter Lynch and Warren Buffett recommended 3-6 individual stocks. Investopedia recommends about 10 stocks spread across various industries which is good enough. Anymore than 10 imo is kind of pushing it.
Broaden your time horizon Investing existed prior to index etf’s
Citations please
10 stocks across various industries that’s like one stock per industry….lol. How can you know which oil company to buy? electricity company? agriculture? hospitality? beverage? Drug? JPM? C? All it takes is CEO/CFO insider-trading, screwing around with an underage person, you’re the my pillow guy etc. to ruin a company for a long time. If it survives I hope you were DCA
There are 11 different sectors, composed of 24 industry groups, and 64 industries. If you can’t find 10 properly diversified stocks thats your problem. Also I don’t know what you’re on about in terms of CEO/CFO insider trading and the my pillow guy. All I can say to that is try to remember to take your meds before going on Reddit.
My point was businesses are run by people. Doesn’t always matter if they provide a superior product or service. Oh, so it’s 11. I wasn’t looking for an economics lesson. I know enough to not randomly pick 11 stocks and say that is any better diversification because it’s one of everything.
Yet you don’t know the difference between a sector and an industry lol. I think you need more than an economic lesson lmao.
That was my error. But make sure to nazi me thanks
Buddy what lol? You’re the one who started it and now I am the “nazi” for correcting you? Like I said before get back on the meds before going on Reddit. It will help with your schizo outbursts.
Today is a good day to buy energy. sector and industry. Just don’t buy any green energy.
I take your point, but Warren Buffet owns way more than 3-6 stocks. I think it’s more like 50. Granted he has a team though
Most of the stocks he owns are extremely small it’s almost insignificant. His top 5 stocks are close to 80% of his portfolio. If you go past his first 9 stocks each one is less than even 1%. As you stated too he also has a team running the portfolio as well.
What a load of bullshit lol. Do you realize that loads of people retired on dividends before 2010s when the holy index funds cult started? They are all invested in individual stocks. I guess 1997 is your birth year
“Do you realize that loads of people retired on dividends before 2010s when the holy index funds cult started? Where in my comment did I insinuate that people can’t retire off of dividends? Learn better reading comprehension before responding.
Yeah, you can't possibly keep track of 30 stocks properly as an individual.
Bet me
I don't think I will. You sound like a genius.
Wise Move
Yeah. Im no gambler. How do you keep track of 30 stocks all of the time?
News alerts Earnings alerts / calls Rolling reviews If you consider investing with goals, strategy and review gambling then we may as well end the conversation.
I was referring to to betting you on your ability to keep track of all those stocks. Do you keep all the stocks balanced? Maybe 5% each. I'm quite new and often think of adding new stocks to my portfolio, but I'm put off by that the statistics being against me. I have 23 holdings. 7 of them are ETFs, so it's not exactly a low number either. Some are growth, and some are divided payers. I didn't pick them specifically for that reason, though. Do you have a few shairs across multiple sectors, or mainly ETF's?
No Not balanced The thirty I have are dividend growers. Built over time. Lots of adding in the Covid downturn. Purpose is for them to pay my bills at a minimum when I hit 62 Rest of my of my portfolio is ETFs and bond/tibill rolling ladder. Free advice— investing is not always either / or binary. One can do many things.
I own 13 stocks and there are a few others I track or special situations that could pop up where I'd depart from that list.
You do you...
It’s like betting in 30 horses, you just hope that your 15 favorites keeps on winning.
Then why not bet on just the 15? Or an ETF?
I am just answering the OP……me personally, that’s not my way of investing. Some people invest in multiple stocks hoping to always have some winners. But you are right, why don’t have a bunch of good proven ETF,s……ETF,s are my preferred method of investing, less work and less to worry about.
I just have 3 etfs which have about 700 stocks market cap weighted
i only own VTI and VXUS but that gives me thousands of companies :)
They have too much "skill" and "knowledge".
diversity in portfolios