“Broad based stock market portfolio” is a widely used term, but just what does it mean? It is easy to say, but hard to define and even harder to construct a portfolio representative of the broad based market.
I will describe some key elements that I believe make up a broad-based market and then make some suggestions of what to consider doing, but each investor needs to develop their own portfolio in a way that they feel will accomplish their goals.
There are 3 major categories:
- Size: These are the size of the companies invested in. There are Large company stocks, medium-size companies, small size, and micro size.
- Style: The category, objective or sector of the company. Included are value, growth, dividend payers, high tech, utilities, commodities, real estate, and IPOs.
- Country: This is the country where the company is located, e.g. United States, Foreign, Europe or Asia, or emerging markets.
A broad-based portfolio would contain elements from all these categories so the portfolio would be shielded from large changes in one or two parts that might drop drastically. However, a broad-based portfolio would not protect you from overall market downturns, and should not perform significantly better than the entire market since you would be diversified across the market.
Choosing individual stocks from each category is pretty daunting and that is why mutual funds and exchange-traded funds are so popular as is using investment managers.
There are many other investment vehicles In addition to the stock market. These include bonds, mortgage-backed securities, commodities, real estate, private equity, currencies, tangibles, so-called alternative investments and even some newfangled flavors of the month such as cryptocurrencies. Whatever your choice you need to focus on attaining your goals while maintaining a relatively secure position with mitigated risk. This is not easy and is challenging and while stocks seem to be owned in some fashion by about 55% of Americans, stock selection is nevertheless unclear, risky and you need to make the effort to understand what you are doing and how you can profit or lose.
When I read, listen to or watch business news programs about new “sure thing” investments I think about the “confusing” stock market and wonder how anyone would consider some of these new untested unexplainable and in some cases inscrutable investments.
I intended to provide a formula of what to do but changed my mind. There is no cookie-cutter method that suits everyone. I suggest you meet with a financial planner and develop a plan that would help you attain a realistic way you could reach your goals along with the degree of financial security that would comfort you.
My blog on Jan. 11, 2021 has additional information you might find helpful.
If you have any tax, business, financial, leadership or management issues you want to discuss please do not hesitate to contact me at [email protected].
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