The long-term risks of having only a few stocks in your portfolio The long-term risks of having only a few stocks in your portfolio The long-term risks of having only a few stocks in your portfolio

The long-term risks of having only a few stocks in your portfolio


What’s the problem?
Investors with only one or a few stocks in their portfolios risk significant volatility in their wealth and poor longer-term outcomes. Investors with only a few specific positions often become “married” to their investments, making the decision very difficult on whether and when to sell and move on if the investment disappoints.

What’s the solution?
Broadening your exposure to the market: it’s called diversification and there are a couple of basic ways to get started.

Adding stocks by:

  • Adding many stock positions from a variety of industries. Certainly a valid approach, but stock-picking can be an overwhelming task for investors who feel they lack the expertise and in-depth knowledge of specific areas of the economy.
  • Adding exposure to all stocks in a stock market index via an ETF. This is the most common route. ETFs are funds that trade like stocks. The largest and most popular of these simply track well-known indices like the US S&P 500, the broad EuroStoxx 600 index, and even the MSCI World Index, which contains nearly 1,500 stocks from all around the world.

Adding bonds via a bond ETF as well. While it was rough sledding for both bonds and stocks in 2022, exposure to bonds has historically helped balance the volatility in stock prices and provided positive returns when stocks are on the defensive.

Quick Start Guide A diversified portfolio is just a few clicks away.
Here’s how to get started with a more diversified investment approach:

  1. Define the percentage of your portfolio you would like to fully diversify. This could be 50% or even 100% if you would like to avoid decision making entirely. It’s entirely up to you.
  2. Choose the mix of stocks versus bonds you would like to have in this core, diversified holding. One conventional approach is 60% stocks / 40% bonds, but 50%/50% can also be a starting point.
  3. Choose the stock ETF(s) and Bond ETF(s) that offer a broad exposure to the market. See the example portfolios below that you may find appropriate.

Your approach can change over time, of course. For example, you can start by dedicating 75% of your portfolio to “passive” investments like broad stock index ETFs and bond ETFs while taking a more active approach to investing the remaining 25%, and as you add additional funds, you might downshift the more passive portion in favour of more active management, or even vice versa.

Some sample approaches to your diversified portfolio.

Portfolio A – the ultra-basic, ultra-broad global approach. Note that the “UCITS” description for the ETFs below are particularly important for European investors, as these are highly regulated investments in the EU for maximum tax efficiency. In the case of the global bond ETF, it is worth noting that the bond doesn’t pay out the interest rates, but rolls those payments into buying new bonds, again increasing tax efficiency.
Note: click on the below to trade or if you want to take some time to consider, click the star on the right to add these ETFs as a watchlist.

  • iShares Core MSCI World UCITS ETF (SWDA:xmil)
  • iShares Core Global Aggregate Bond UCITS ETF (AGGH:xams)

Portfolio B – a bit more exposure to Europe. Here, we add a broad index of European stocks to offer more exposure to your home region.

  • iShares Core MSCI World UCITS ETF (SWDA:xmil)
  • iShares Core MSCI Europe EUR (Acc) UCITS ETF (SMEA:xmil)
  • iShares Core Global Aggregate Bond UCITS ETF (AGGH:xams)

Other ETFs for inspiration.
Below are several further UCITS ETFs to consider for the Europe-based investor, some that offer a diversified exposure to US stocks, US technology stocks, Japanese equities, and emerging market stocks, European corporate bonds (which feature slightly higher interest rates than government bonds, but with slightly more risk, although here, diversification helps). Shortly put, ETFs are the easiest route to gaining exposure to hundreds and even thousands of stocks and bonds with just a handful of investments.

  • iShares Core S&P 500 (Acc) UCITS ETF (CSPX:xams)
  • iShares NASDAQ 100 UCITS ETF (CNDX:xams)
  • iShares Core MSCI Japan IMI UCITS ETF (SJPA:xmil)
  • iShares Core MSCI Emerging Mkts IMI UCITS ETF (EMIM:xams)
  • iShares Core EUR Corp Bond UCITS ETF (IEAA:xlon)
  • iShares EUR High Yield Corp Bond UCITS ETF (HIGH:xlon)
  • iShares Core EUR Govt Bond UCITS ETF (SEGA:xmil)

Further reading:
For a bit more background on diversification, consider this piece on the benefits of diversification from Saxo’s Head of Equity Strategy, Peter Garnry.


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