Single Asset Class Diversification

So here’s the food for thought: If I’m investing in stocks and ETFs, is it possible to be truly diversified?

Author

Courtney May
November 01, 2023

Partnered with: The Siberia Job

Welcome to Stonk Enjoyer.
October was a rollercoaster of a month for the market, but November is historically a green month for the market. We’ll see how things kick off for the 1st of the month after the Fed announcement this week.

In the Wild

For my Spooky SZN fans - Here is my best Halloween costume ever:

This is not investment advice and is intended for entertainment purposes only

Presented by “The Siberia Job”

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This book takes you on a journey with a Texas businessman who travels to the furthest reaches of post-Soviet Russia in search of the country’s new wealth ― and finds new dangers along the way.

With over 20,000 copies sold, this thrilling adventure is for any reader who loves a good story and going all in on a calculated trade.

Get yourself a copy here.

What am I HODLing: Single Asset Class Diversification

One of the known tenets of investing is for your portfolio to be diversified. 

It’s an investing buzzword.

Exchange-traded funds (ETFs) that track an index like the S&P 500 have surged in popularity as a low-cost approach to investing in a basket of stocks so you can be ~diversified~

But the ETF is is made up of publicly traded companies that technically, are the same asset class.

So here’s the food for thought: If I’m investing in stocks and ETFs, is it possible to be truly diversified?

Public markets are concentrated.

And they're becoming even more so. 

Many retail investors stick to large caps, mega-caps, or ETFs in their portfolios.

The reality is, that the interest rate environment may continue to hit stocks hard.

According to Morgan Stanley, the largest 10 mega-cap companies that makeup the S&P 500 index account for almost 35% of its total market capitalization compared to closer to 20% over the past 35 years.

This reality makes it difficult for retail investors to be truly diversified.

But there are levels of diversification.

I can have a diversified equity portfolio….

But I can have a very concentrated amount of my net worth in just equities with that “diversified equity portfolio.”

It’s hard to beat a down market when it feels like every asset class is taking a hit…

But here are some other popular asset classes that help people diversify:

  • Real Estate

  • Fixed Income

  • Crypto

  • Gold

  • CDs

But I’m gonna stick to talking about STONKS.

There’s a famous rule of thumb that if you take your age and subtract it by 100 then that is the percentage of your total net worth that can be in equities. This is due to the fact that when you are younger and hold stocks, you have a more distant investing horizon. This timeframe diminishes as you get older and have less time to take on the risk of being mostly made up of equities.

If I abide by this rule, I should be 75% stocks.

(In reality, I’m closer to 85% but come on, my name is Stonk Enjoyer)

When it comes to asset classes, none are perfect and when the market is taking a hit and inflation is high, they can all seem like the wrong choice.

So always do your own research 👍

What am I Reading?

Last week we kicked off the Stonk Enjoyers Book Club!

We gave away a hot dog shirt… so lit.

Join the next one if you like hot dogs or books.

Here are the details:

  • Current Book: Elon Musk by Walter Isaacson

  • Next meeting: 11/6/23 at 5 PM PST

  • Location: X Spaces

  • Discussing up to Chapter 38

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