Investing 102

[GregWeld]

Aman --- good post.


#1 --- ETF's.... I'm not a fan of this style of investing for the main reason is that they are "dumb" like Mutual Funds are. They seek to just diversify an investment in a group/basket of stocks and sadly the bad to midland stocks drag down the overall investment in the good names they hold. While they can pay dividends they are usually super low % wise... so that leaves you with mostly the "growth" component. It's for that reason that I don't use them. They will simply follow that market - you'll never beat the market - and you don't get paid to sit on your hands.



So the ETF "versions" I use are for Corporate Bonds - and Junk Bonds (one and the same really except for the quality of the underlying issue quality/credit worthiness) such as HYG and JNK and PFF.... those are the trading symbols for the three I use the most (in fact have a couple mil in these). I use these to park cash and get a fairly high return - but I would warn that these are not for the buy it and fugidaboudit investor. They'll get crushed if the interest rates move! So you have to be nimble.


#2 -- I've suggested in the past that if you have 5K to invest - that you might only choose TWO stocks... and 10K you might choose 5 names etc.... and when you get to 100K you should have 20 names....and even if you have a million you can still stick to 20 or 25 names. This is given that you're simply invested in the best of breed and want the dividends long term etc. So to answer your question --- diversity without the corresponding level of investment just won't get ya done.... so don't diversify just to diversify - but rather WORK TOWARDS THAT GOAL.... so with 5K buy two - save for your next investment and buy name number 3 and so on.

Hope this answers your question?