Is there a way to achieve proper diversification with a portfolio consisting of only domestic stocks?
I am concerned about diversification since I do not own any bonds or foreign stocks I am wondering how can I achieve proper diversification.
Categories: Stocks | 
Tags: Bonds, proper diversification, Stocks | 
4 Comments »
Over the long run, if you only own a diversified S&P index fund, you’ll probably turn out just fine. It all depends on how diversified you want to be. Sure, buying some foreign stocks or funds will get you access to other areas of the world slightly better than owning US multinationals, but how much more is anyone’s guess. Foreign stocks are a little more risky, but they’ve been outperforming the US market for a while now too, so it’s up to you.
Then if you want to get even more diversified, you can get into commidities like gold (GLD) and oil (DBO). But if you want to keep it simple, sticking to a diversified US index fund will work too!
Buy companies that do business internationally, like Coca cola or Honeywell. For bonds, you can buy a shares of bond mutual fund through your broker or directly from a mutual fund company.
Yes, but you would have to invest in different sectors, such as technology, consumer staples, healthcare, energy, and insurance. Buying an index fund would take out all of the guesswork. You would basically investing in all the top companies of that index, such as the S&P 500 and the Dow Jones Industrials. But you may want to think about purchasing government bonds or bond funds for protection. You don’t want all of your money in stocks, that’s too risky. You want true diversification, not just asset allocation in stocks.
In a room full of reasonable, experienced advisers, I suspect most would say "no" if you exclude ETF’s from your definition of "domestic stocks" and/or have less than a couple of million dollars to invest.
However, there is a great deal of opinion on this subject and far too little unbiased research…