If there were a Mount Rushmore of investing advice, the words “make sure you have diversification” would surely be up there. Diversifying company size, sector, and geographic location is important because you don’t want your portfolio to rely on too few factors. There can be upsides to concentrated portfolios, but the downsides are usually much worse (and more likely to happen in the long term).
Ideally, you want a portfolio of at least 25 stocks, but instead of focusing on individual companies, I would invest in exchange-traded funds (ETFs), which allow you to invest in many companies at once. It doesn’t take many ETFs to get the job done, either.
If I had to start from scratch, I would invest $20,000 in these three ETFs.
When in doubt, look to an S&P 500 ETF
Very few stocks cover as much ground as an S&P 500 ETF. Tracking the largest 500 public U.S. companies, the S&P 500 is the most followed index on the stock market, and its performance is often used interchangeably with the stock market’s performance as a whole.
Aside from expense ratio, there’s no tangible difference between S&P 500 ETFs, but you can’t go wrong with the iShares Core S&P 500 ETF(IVV -0.21%), which is low cost and contains companies from all 11 major sectors:
Communication Services (7.20%)
Consumer Discretionary (9.66%)
Consumer Staples (7.30%)
Energy (5.26%)
Financials (11.58%)
Healthcare (15.80%)
Industrials (8.70%)
Information Technology (25.52%)
Materials (2.77%)
Real Estate (2.72%)
Utilities (3.22%)
Since the S&P 500 only contains large-cap stocks, it’s not 100% diversified, but it does a good job of giving investors broad-based exposure to larger companies in one investment. And it helps that it contains most industry leaders and blue chip stocks. Therefore, I would let the iShares Core S&P 500 ETF be the foundation of my portfolio and invest $13,000 in it.
Don’t look past the small guys
Because of their size, small-cap companies often have more room for growth than large-cap companies, which can bode well for investors. However, it’s also the small size that makes small-cap stocks more prone to volatility and broader economic conditions. It’s a risk-reward trade-off.
You don’t want all of your portfolio in small-cap stocks because of the risk, but you should have some, or you could be doing yourself a disservice and missing out on high growth potential. I would invest in a broad, small-cap ETF like the Vanguard Russell 2000 ETF(VTWO -0.26%) to lessen the risk.
The Russell 2000 is considered the primary benchmark for small-cap stocks. It has similar status in covering the small-cap stock universe as the S&P 500 has for large-cap stocks.
The Vanguard Russell 2000 ETF is low cost with a 0.10% expense ratio ($1 per $1,000 invested) and contains 1,970 stocks also spanning all 11 major sectors. You probably won’t get the hypergrowth that you could with individual small-cap companies, but you also don’t take on as much risk.
I would invest $3,000 in the Vanguard Russell 2000 ETF.
Leave room for international stocks
A truly well-rounded stock portfolio should include international companies. If you’re only investing in American businesses, you’re missing out on some great companies and investments.
International markets are divided into two categories: developed and emerging. Developed markets typically have advanced economies, established industries, and higher living standards (the U.S., U.K., Japan, and Australia, for example). Emerging markets typically have less infrastructure, younger capital markets, and less stable economies (Mexico, Brazil, Russia, and India, for example). Similar to small-cap stocks, companies in emerging markets are riskier but tend to have more upside as they grow with the market.
Researching individual companies can already be time consuming, but it’s an added layer when you have to factor in things like the local economy and politics, which could make or break a company. Instead of going through that, I’d lean on the Vanguard Total International Stock ETF (VXUS -1.00%), which contains over 7,900 companies in both developed and emerging markets.
With a trailing-12-month dividend yield — the average dividend yield over the past 12 months — of 3.11%, the Vanguard Total International Stock ETF also offers higher amounts of dividend income than the iShares Core S&P 500 ETF (with a current yield of 1.69%) and Vanguard Russell 2000 ETF (yielding 1.48%).
A good rule of thumb is to have 20% of your stock portfolio in international stocks, so I would invest $4,000 to close out the $20,000 total invested.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
