09 Apr 2020
I am looking into diversifying my portfolio. But I also know that my capital isn't huge (~20k). For diversification, I understand that portfolio shld have 10 stocks at least, is this correct?
With my capital, would it be worth it to go into 10 different stocks (1k each) or 4 different stocks (5k each)? I just worry that if I only go into 4 different stocks, my diversification would not be good. Advice please :)
Don't fret about diversification first. You are right though, $20K is not sufficient capital to build a diversified portfolio of individual holdings. Your options are to:
Get around 2-3 stocks to start, and continue to save capital to buy more later on (surely you won't stop at $20K worth of stocks)
Diversify immediately via ETF or unit trusts.
Both options work fine, and will just be a matter of what you prefer.
I've read somewhere about the 10 stocks thing, but don't have a link at the moment. However, having too many holdings is also counterproductive as it is difficult to track.
I think typically you will want to keep your cost of dealing with each stock low. If it's $1,000 per stock, it means even with DBS Vickers Cash Upfront ($10 per trade + other costs e.g. SGX fee, GST etc.), your expense is about 1.1% per stock. Usually, we want to keep it below 1%. I'd suggest you can start with $2,000 per stock, so you get about 10 stocks with strong financials and wide economic moat. Just make sure you know what you are buying into. If 4 stocks are easier for you to keep track, maybe it's better that way.
Everyone has their preferences on how much they should diversify. 10, 20, 100, 500 etc. It all depen...
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