No matter how old or young you are, the adage about not putting all your eggs in one basket applies across the board from exchange traded funds (ETFs), to stocks and to just about anything in life.
Matt Krantz for USA Today had a question from a couple around retirement age who had lost 30% on their portfolio, largely because they were heavy in just two stocks: Intel (INTC) and Cisco (CSCO). Yikes! That’s a lot of retirement savings put into just two companies and one industry.
Krantz rightly notes that at retirement age, investors should be working to preserve their money instead of trying to boost returns.
But retirement age or not, investors are better off with ETFs because they offer the kind of diversification you just can’t get with individual stocks. For example, if you wanted to gain access to the tech sector, both Intel and Cisco are components of the Technology Select Sector SPDR (XLK), at 7.5% and 6.4%, respectively.
On top of that, XLK has 81 other holdings besides those two, so investors can be assured that they’re not pinning the hopes of the portfolio on just one or two companies. ETFs are great at spreading the risk around a little.
XLK and other ETFs are also an easy way to get diversification at
Not only this, but if these investors only had two spots in their portfolio, they would have had tons more diversification if they had owned two ETFs instead of two stocks.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.