How to build a diversified share portfolio
by Wealth Know How in Stock Market
This video is about building a diversified share portfolio effectively in three key ways. Learn the 1-2-3 of share portfolio construction using easy to understand approaches you may wish to consider for your investment strategy. In addition to these three basic approaches, James Dunn discusses the importance of 'weights' and makes the point that whatever you decide it should not be intended to be a 'set and forget' strategy.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 17 Jan 14
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This video is about building a diversified share portfolio effectively in three key ways. Learn the 1-2-3 of share portfolio construction using easy to understand approaches you may wish to consider for your investment strategy. In addition to these three basic approaches, James Dunn discusses the importance of 'weights' and makes the point that whatever you decide it should not be intended to be a 'set and forget' strategy.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Firstly, by Numbers—buy 10 to 30 stocks. Studies show that having more stocks may negate the benefits of diversification. With 10 to 30 stocks, you can get a good spread of sectors and companies and investment exposures, both in Australia and overseas. You’ve got to know your companies reasonably well, which gets harder the more you own. Diversification is great, but it has its limits.
Then, by Sectors—you don’t want all your stocks in the same industry, for example, banking or mining. Instead, select a varied group: try to bring in as many different sources of revenue and income as you can. Again, it's good at this stage to add overseas earnings flows where you can, to bring in influences other than the Australian economy.
Third, by Size—it’s wise to ensure variation in capitalisation levels, but with a bias to larger-cap companies: keep it to 30% or 40% in smaller companies. That way you have the spice that smaller-caps can add, with the greater reliability of the large-caps – which can certainly perform well at times, too.
Similar portfolio ‘weights’ are important: adding a stock that only makes up 1% by market value of a portfolio will not have the desired diversification benefit. Ideally, you’d have roughly equal weightings, and be prepared to prune the holdings in some of your winners so the weightings don't get unbalanced. Your asset allocation is not meant to be a ‘set and forget’ strategy.