Leonardo Da Vinci was right - “Simplicity is the ultimate sophistication.”
In investing, this can be difficult since it can seem incredibly complex.
This is because there are thousands of stocks and stock markets that always seem volatile and uncertain. Even tougher is deciding when to sell a stock or fund to lock in gains or limit losses.
There are ample books and articles out there regarding the right rules, such as the need for discipline, patience, and research.
All this is good advice except for two things.
First, what has worked in the past may not work in the future because the world and financial markets are constantly changing.
Second, investors are human and therefore sometimes irrational and prone to acting on emotions. This leads to making the wrong moves, like buying at the top and selling at the bottom.
There is also merit in legendary global investor Sir John Templeton’s sage advice:
“Diversify. In stocks and bonds, as in much else, there is safety in numbers.”
Except that diversification, taken to the extreme, is counterproductive.
It helps to have a strategy.
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For your core portfolio, I would go with low-cost, tax-efficient exchange-traded funds (ETFs) as building blocks. As I describe in my book, Think Global, Grow Rich, this core portfolio has capital preservation as its primary goal and capital appreciation as a secondary goal.
I suggest about 10-12 ETFs to build a diversified portfolio with allocations to fixed income, broad U.S. equity markets, exposure to high-quality international markets, income and dividend ETFs, gold, and even some exposure to alternative and real assets.
But if you want to go ultra simple with just one ETF, consider the Vanguard Total Stock Market Index (VTI). With an annual fee of just 0.03% and assets of over $1.3 trillion, this ETF is a basket of over 4,000 stocks.
While it’s market cap-weighted toward the largest companies in the nation, it also gives you exposure to midcap and small-cap names that are “under the radar” for most investors.
To take advantage of a weaker U.S. dollar, invest in the big multinationals with headquarters all over the world through the iShares Global 100 (IOO) ETF, which is a basket of the 100 largest multinationals in the world. This ETF is up 19.2% so far this year, with technology exposure of 46% and of the 100 stocks, an amazing 80 were American companies.
On top of your ETFs could be a portfolio of individual stocks, and a good share of the Cabot Explorer recommendations are part of the iShares Global 100 (IOO) ETF.
It is a personal choice what proportion of your total portfolio and how many stocks should be in your stock portfolio, but be careful not to have too many or too few because both come with drawbacks.
I suggest around twenty stocks that include dominating blue chips and more aggressive disruptive stocks. This is where the Cabot Explorer and other Cabot Wealth products can help you make the best choices.
Finally, don’t forget to take some profits from time to time. We have all been there. Nothing is more painful than picking a great stock and watching it peak and then fall back to earth. Don’t ride the rollercoaster with your investments.
If you are fortunate enough to have a stock or fund double in value, sell some of your position to turn paper profits into real profits.
It is also a good idea to get some help in following and picking stocks.
Join the Cabot Explorer today to learn more about getting the right ETFs and our dominating stocks into your portfolio.
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