Does your portfolio measure up? Does your portfolio have multiple dimensions? Is there both depth and width? A proper financial portfolio should have both depth and width.
Most of us have heard the phrase, “Don’t put all of your eggs into one basket”. When it comes to managing a portfolio many will interpret this statement to mean diversify and they would be right. The problem here is that several of us think diversification only applies to having multiple stocks.
In your portfolios, you want to have both depth and width.
Depth:
Depth is having multiple positions in your portfolio. With depth in your portfolio, one company, or one industry cannot wreck your portfolio if it falls on difficult times. One way to have depth is by holding multiple stocks. Another way to accomplish this is through a mutual fund or ETF (Exchange-Traded Fund). An example of depth is holding the S&P 500 index. With this example, you now have depth in your portfolio. The depth is in you holding stock in 500 of the largest companies in the United States.
Width:
Even if you hold the S&P 500 Index fund, this does not add the second dimension you need for a good portfolio. You do not have width. To have width in your portfolio you need to add different asset classes. You want to add width by adding sectors such as international stocks, small cap stocks, short-term bonds and etc.. Within each of these sections, you also want to have depth.
When you put these two dimensions into play within your portfolio, you cover more area and thus make your overall portfolio more stable. Having a two dimensional portfolio can be as simple as having a well-defined Investment Policy Statement (IPS). Once you have your portfolio established, still remember to:
- Re-Balance at least annually
- Adjust allocation according to age or investment life cycle
How does your portfolio measure up? Does your financial portfolio have both depth and width?
Author
Isaac is a Fee-Only (no products sold) Certified Financial Planner® Practitioner. Isaac founded Stalwart Financial Planning with offices in Fayetteville NC and Durham NC. Isaac provides comprehensive planning and investment management services to individuals from all walks of life. Isaac can be reached by phone at 910-867-8464, or by email (iallen@StalwartPlanning.com). Visit him at Stawart Financial Planning www.StalwartPlanning.com.