Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
Note: this content is targeted towards retail & active investors (who are looking to pick their own stocks).
Once you have worked out the
amount you need to reach a state of financial unbreakability, and
the annual investment returns you need to sustain over a period of time.
It is time to construct your stocks portfolio as an active investor.
Diversification is crucial and beneficial.
However I am not a fan of "over-diversification".
Over-diversification = when there are more than 10 stocks in one's portfolio.
Why I think having more than 10 stocks in one's portfolio can be counterproductive.
The time and energy required to monitor the companies' fundamentals (ie, staying updated on financials performance, plans & news) can be overwhelming.
Contrary to popular beliefs that long-term investors can just "do nothing",
It is important for active investors to ensure their companies' fundamentals are still intact to sustain their projected growth over the stipulated investment period for the investor.
Since technology is improving rapidly and that may cause a lot of disruption for existing industries which our companies are operating in.
When is it acceptable to have more than 10 stocks in your portfolio?
If you are however, looking to invest a very small stake in a company (ie 0.1% of your total portfolio's worth in a promising startup)
and if losing the capital will not deter you from your long-term financial plan.
you can exclude these small speculate stakes from 10 stocks from your portfolio.
Ideally, all the returns of the stocks in your portfolio should exceed your required annual returns.
Note: To find out your required annual returns, read this article.
Let's say you:
will need to achieve annual returns of 15% and
plan to have 10 stocks in your portfolio.
Ideally, this is how your portfolio should look like:
Stock name | Annual projected returns |
Stock 1 | => 15% |
Stock 2 | => 15% |
Stock 3 | => 15% |
Stock 4 | => 15% |
Stock 5 | => 15% |
Stock 6 | => 15% |
Stock 7 | => 15% |
Stock 8 | => 15% |
Stock 9 | => 15% |
Stock 10 | => 15% |
In reality, some adjustments will be required.
For example, a portfolio may look like this instead:
Stock name | Stock allocation | Annual projected returns |
Stock 1 | 10% | 20% |
Stock 2 | 10% | 20% |
Stock 3 | 10% | 20% |
Stock 4 | 10% | 20% |
Stock 5 | 10% | 20% |
Stock 6 | 10% | 10% |
Stock 7 | 10% | 10% |
Stock 8 | 10% | 10% |
Stock 9 | 10% | 10% |
Stock 10 | 10% | 10% |
which will still generate a total annual projected returns of 15%.
Or if an investor would like to include some alternative investments such as ETFs, Gold, Reits & Bonds in their portfolio,
they may need to adjust their portfolio to be something like this:
Asset name | Asset allocation | Annual projected returns |
Stock 1 | 10% | 21% |
Stock 2 | 10% | 21% |
Stock 3 | 10% | 21% |
Stock 4 | 10% | 21% |
Stock 5 | 10% | 21% |
Stock 6 | 10% | 21% |
ETF ⚖️ | 10% | 8% |
Gold 🟡 | 10% | 6% |
Reits 🏢 | 10% | 8% |
Bonds 📃 | 10% | 4% |
which will also generate a total annual projected returns of15%.
Try it out on this tool (Portfolio builder)
(method to use): download the sheet and pluck in your respective figures.
For more info, you can refer to my portfolio here.
For more in depth information:
To read next:
Looking for a set of checklists to identify great companies for your portfolio?
