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You’ll often hear that maintaining a diverse mix of investments is your ticket to growing wealth. A diverse portfolio could also protect you from greater losses than necessary during a stock market downturn.
But the last you want is to get tripped up on the road to diversifying. Here are a few mistakes you could end up making.
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1. Buying so many stocks you can’t keep track of them
As a general rule, it’s a good idea to own a minimum of one dozen stocks across 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 such a thing as owning too many different stocks. And while there’s no specific cutoff, let’s just say that if you own 64 different stocks, there’s a good chance you own too many.
As a general rule, it’s a good idea to keep tabs on the stocks you own to make sure their performance meets expectations. But that’s a hard thing to do 64 times over. And so at some point, you do have to say enough is enough when it comes to adding stocks to your portfolio.
2. Forgetting about fractional shares
For years, if you wanted to invest in a specific stock, your only option was to purchase a full share of it at a minimum. In some cases, that may have meant saving up enough money to swing a full share price and missing out on lower prices in the process.
These days, however, a growing number of brokerage accounts are offering investors the option to purchase fractional shares. As the name implies, with fractional shares, you can buy a piece of a share of stock if you can’t swing the cost of a full share, or if you simply don’t want to spend so much money on a single share.
So, let’s say you want to invest in a company whose current share price is $1,500. If you only have $500 at your disposal, you don’t have to wait on that stock and run the risk that its share price will climb. Instead, you could buy a third of a share and add it to your portfolio right away.
3. Avoiding ETFs
Some people don’t like ETFs, or exchange-traded funds, because they feel that in buying them, they give up control over what goes into their portfolios. But ETFs are actually one of the easiest diversification tools available.
When you load up on broad market ETFs, you get to own a whole bunch of companies with a single investment. But the good thing there is that you don’t have to worry about tracking the performance of each company individually — all you need to do is keep tabs on that ETF and make sure its meeting its benchmarks. It’s a simple way to branch out without creating a world of legwork for yourself.
It’s definitely wise to maintain a diverse portfolio during your wealth-building years as well as during retirement. At the same time, it pays to steer clear of these mistakes so you don’t get in over your head or lose the opportunity to diversify with greater ease.
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