Your Thoughts On Diiversification...

Discussion in 'Stock Market Education' started by Colebra, Feb 24, 2015.

  1. Colebra

    Colebra Well-Known Member

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    Here's what's up:

    I've decided to put 100$ aside every month for financial investments.
    Should I just pick one type of financial instrument, and stick with it by steadily adding to the account?
    How long should I wait before I start adding multiple types of financial products to the account?

    Most of my time right now is dedicated to the Internet Marketing space.
    I'm mostly looking to slowly educate myself on financial investments. Which means that for now, I'll be a really conservative investor.
    At this point, Index Funds sound pretty sweet to me. I still have a bit of studying to do though...

    How do you think I should play this?

    Thanks for your thoughts ladies and gents. I really do appreciate it...
     
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

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    An index fund itself is highly diversified. If you're buying a couple shares a week of a S&P or Russell index fund, you're already getting great diversification.

    But if you were going to invest in individual securities (stocks), I'd pick at least 5-6 and divide your money among those.
     
  3. crimsonghost747

    crimsonghost747 Senior Investor

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    With $100 a month to invest it certainly seems like funds are the way to go, assuming you can get them for very little or even no commission. If not then you are looking at saving for maybe 5-6 months between each purchase so the commission doesn't take away more than 1%.

    With index funds you already get exposure to a huge amount of companies and when going for big indexes like SP500 pretty much all of those companies have a global reach so geographical diversification has also (partly) been taken care of. I would still consider having 2-3 different funds but it's not absolutely necessary.

    If you decide to go with direct stock purchases then the 4 or 5 first buy transactions should be for different companies to have some sort of diversification from the start.
    You will notice that as time goes by you will automatically diversify your portfolio since you will probably find new interesting things to buy.
     
  4. queenbellevue

    queenbellevue Well-Known Member

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    Yeah I agree with everyone else here. Index funds are definitely the way to go since you don't have too much working capital to begin with.
     
  5. Colebra

    Colebra Well-Known Member

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    Funds just seem wiser at this point.
    It's also a time issue...
    I was just thinking, different funds, or something...

    Probably a stupid question, but I didn't quite get the thing about the commissions...
    You mean broker commission, right?
    They are lower if I place a bigger order? Is that what you mean?

    Thanks for the help guys! :)
     
  6. crimsonghost747

    crimsonghost747 Senior Investor

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    If you feel more comfortable going with funds then that is what you should be doing. And yes you can definitely get more than one fund. All JR is saying is that index funds are already very well diversified, especially the bigger ones.

    Yes I was talking about broker commission. The brokers charge a certain % but there is always a minimum and that is where this issue comes from. Say you have a minimum commission of $5. If you invest $100 you pay $5, which is 5%. If you invest $500 you pay $5 which is 1%. Now if you buy with $100 every month for 5 months you will have invested $95 each month (since you take away the commission) which totals to $475 if the price does not fluctuate at all. If you wait and invest $500 at one time, you will be left with $495. That is $20 saved on commissions... and that is $20 of pure profit. I personally follow the rule of keeping commissions at 1% or less.
     
  7. eagletal88

    eagletal88 Guest

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    I can vouch for the commission costs adding up quickly. I just started investing seriously late last year so I don't have a lot of information to help, but I will tell you be careful wasting all that money on commission costs...

    I like what Crimson said with saving up for 6 months, and then spending the $600 then and pay whatever the commission cost is. I read somewhere a good rule of thumb is always pay 2% or under for commission costs.

    I use Fidelity and they charge 7.95 to buy, and then again to sell. So I always factor in $16 for total commission. To stay true to the rule, I always invest at least $800, (2%).
     
  8. Colebra

    Colebra Well-Known Member

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    Got it.;)
    Awesome stuff people.
    Just thank you.
     
  9. petesede

    petesede Guest

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    And of course remember that there is a sale commission also, so you pay going in, and going out. Someone else mentioned $500, but I would say probably $1000 if you plan on selling anytime in the next year or two.

    I learned this the hard way when I first started, around 1986. This was obviously back before the time of online brokers, and even Charles Schwab was just getting started with low-cost commissions. So I bought $100 worth of a stock.. saw the stock go up 50% in 18 months ( which is what I was expecting). I needed the money and sold the stock... and ended up with $94. I picked a stock that went up 50%, and I lost $6. I seriously wanted to throttle the broker when he told me that there was a sell commission also. LOL
     
  10. Colebra

    Colebra Well-Known Member

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    Thanks. I'll definitely do all the math before going in.

    Awesome story!
    Also, that was the year my mom blessed the world with my existence :p
     

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