天涯小站 2.0

 找回密码
 注册
搜索
查看: 749|回复: 0

How many investments should you have?

[复制链接]
发表于 2009-10-24 15:17:03 | 显示全部楼层 |阅读模式
By Morningstar.comMost of us collect something. For some, it's rare coins. For others, it's baseball cards. Still others collect clothes.
Somepeople collect investments. They may own a dozen funds in their 401(k)plan, another half dozen funds outside of it, and 25 or so stocks.That's a lot of investments.
The problem with owning too manyfunds and stocks is that you can easily lose sight of the forest forthe trees. You start out as an investor with an investment goal and aportfolio tailored to you and turn into a collector who has forgottenwhat your goals are.
This course will cover how to know when enough is enough.
How many stocks you 'need' Diversificationseekers always want to know what the optimal number of investments is.They want to have enough holdings to moderate the volatility of theirportfolios. But they don't want too many holdings, because they thinkthey're diluting their possible returns and overcomplicating theirinvesting lives.When it comes to stocks, various studies havesuggested that you can adequately diversify a portfolio with 15 to 30stocks. In his 1930s classic, "The Intelligent Investor," BenjaminGraham said that the magic number was somewhere between 10 and 30names. In the late 1960s, John Evans and Stephen Archer concluded that10 stocks were enough. And in the 1970s, Burton Malkiel said 20 stockswill do in "A Random Walk Down Wall Street."
Don'tlet these numbers mislead you, though. For starters, most of these "howmany stocks" stories assume random investing -- and investing isanything but random, unless you're the type who chooses investments bythrowing darts at stock tables. We all have our own investment styles.
Perhapsmore important, however, recent studies, including one by Malkielhimself, show that the volatility of stocks has risen over the past fewdecades. Additionally, individual stocks are behaving less like otherindividual stocks. As a result, the number of stocks you need to mutevolatility likely is far greater than 15.
How many funds you 'need' What about mutual funds -- how manymutual funds do you need to have a diverse enough portfolio? To findout if more funds mute volatility the same way more stocks do,Morningstar created hypothetical portfolios ranging from one to 30funds, using every possible permutation of funds. We then calculatedfive-year standard deviations for each of those portfolios. A higherstandard deviation can spell bigger gains or losses, while a lowernumber indicates a less volatile portfolio. Morningstar found thatsingle-fund portfolios had the highest standard deviation, deliveringeither the biggest gains or the heaviest losses. So owning just onefund can be a risky bet. Add a fund and the standard deviation dropssignificantly. Returns are lower, but the downside is less severe, too.After seven funds, however, a portfolio's standard deviation stayspretty much the same regardless of how many funds you add. In otherwords, once you own seven funds, there may be no need for more.
Of course, the same caveats that apply to studies of how many stocks you need apply here, too.
What you really need: Diversification Butthe number of securities you own is less important than how diversethose securities are. Seven large-growth funds won't diversify yourportfolio the same way owning one large-blend fund and one small-valuefund and one small-growth fund would. Use Morningstar.com's Portfolio Managerto analyze your current portfolio, if you have one. Use the same toolas you're assembling a portfolio, too, to see if your choices are asdiverse as you think they are.
You'relooking for two things: Funds and stocks that invest in the same way,and holes in your portfolio. More than one large-growth fund orwireless stock, for example, won't add much to your portfolio.
Theodds are pretty good that if you own multiple investments doing thesame thing or you are considering investments that do the same thing,one is better than the others. Focus your money on the best choices.
Don'tforget that you can have overlap even though you own just a smallnumber of securities. Conversely, even if you own a lot of investmentsyou could still have gaps in your portfolio.
The bottom line: Don't obsess over the number of securities that you own. Instead, concentrate on their diversity.
Published Oct. 1, 2008
回复

使用道具 举报

手机版|天涯小站

GMT-4, 2020-2-23 06:05 AM

Powered by Discuz! X3.4

© 2001-2017 Comsenz Inc.

快速回复 返回顶部 返回列表