Stock Market
Investment Theory

How can a small investor diversify their stock portfolio?

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Wiki User
2016-04-08 13:44:51

You can use index funds or exchange traded funds to track a

broader market index. This gives you exposure to many different

types of companies, without your individual research required.

Furthermore, your money is allocated between many sectors, so if

financial companies hit a rough patch, perhaps your oil companies

will be doing well. For large-cap (large-cap = big company!)

international exposure, there are a lot of good options for you.

The most diversified funds will have exposure to the largest

sectors of the US economy, and are generally linked to a broad

market index (like the Dow Jones or S&P). For diversification,

stick with the index funds, as they will incorporate a variety of

company types. The most widely held index fund type is the S&P

500 index funds. These, however do not diversify down into mid and

small caps. or international. One might want to ad these other

indeces as well for a more diversified portfolio. bonds also need

to be diversified - a total stock bond index fund is a good start

there...look at VTSAX, VGTSX and VBMFX as a starting point-other

companies have these type funds. If you wish to own individual

stocks, over 1100 companies have Dividend Reinvestment Plans

(DRPs). These are companies that, at a minimum, allow you to

reinvest your dividends in their stock at no fees. Many of these

companies have Optional Cash Purchase Plans (OCPs) that allow you

to purchase additional shares in the company at no fee. Usually,

you must own at least 1 share in the company. After that you can

register in the DRP and purchase shares with the dividends or

through the OCP. See the link for more information on DRPs.

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