Am I diversified enough?

Knowing what you invest in,  is important. At the start of my formal FIRE journey, I had a look at my asset allocation. I selected 3 ETFs as my core index portfolio. After some analysis, I considered it diversified enough.Inspired by Tristan from Dividends down under, I decided to push my limit a little further and do a sector break down. At the same time, it is a good excuse to migrate my old analysis sheet to a google docs sheet. I can now access it from everywhere.

Sector analysis

Looking at the major sectors, I do have the impression that I am well diversified across all sectors. The biggest by far is the Financial Sector. Compared to the S&P 500, I have the top 2 inverted. As one needs to be the bigger one, I am ok with this: it does not worry me too much.

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A further analysis has shown me that the financial sector individual stocks are not in the top 5 of the IWDA  (Apple, Microsoft, Exxon are some of the top 5 holdigs). The same goes for EMIM. Financials are the biggest sector, when looking at individual postions, they are not the biggest… A good balance.  In the CESL, the first financial stock  pops up at postion 2, creating an overall portfolio weight of 0,246 pct in my portfolio. The IWDA top financial holding creates a 0,56 pct representation. The top 5 of IWDA is approx 4,5 pct and is not financial.

Regional analysis

Plotting all my holding on a world map is fun to do. It is actually amazing how easy it is with Google docs.

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Almost the whole world is covered. I am invested in 39 named countries, as seen in the map.3,63 pct is invested in non named countries.

A more regional splits brings the following.

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Conclusion

Now that the analysis is complete, I am happy with what I have. There are no outliers in the industry allocation and the geographical allocation is in line with my goals.

Are you happy with your diversification?

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36 thoughts on “Am I diversified enough?

  1. Thats a pretty impressive plot you have going across the world!

    I am probably not diversified enough yet – although our 401K is spread across a lot of different industries/countries.

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  2. Hey ATL,

    I’m glad our topic inspired you to have a look through your own holdings. I agree with you, you look good on the diversification front, nothing too much in any sector or company.

    I’m okay with our diversification st the moment. As we are buying individual companies and are at the beginning of our journey, our sectors are quite lopsided. In time it will be better. 🙂

    Tristan

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  3. Nice job on the sector diversification! This is something I need to investigate more – I try to spread my money out across different outlets (stocks, bonds cash, real estate, etc.), but I haven’t done as much on the diversification within my stocks. I believe Quicken now lets me do that for free (through Morningstar), so I really don’t have an excuse. I’ll have to do that here shortly and see how I do!

    — Jim

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  4. Very interesting. Love the map. It is so important because even within countries there are biases eg in our share market (ASX) we have a strong skew towards financials and resources, with hardly any IT.

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  5. That’s quite a detailed look at how your portfolio is diversified. I must admit that my own ETF research was based more on reviews and recommendations from others based on their experience rather than drilling down into the detail. I did also consider past performance as well but do understand that this is not indicative of what may lie ahead in the future.

    In saying that, I do regularly check their performance and do have a reasonable knowledge of the sectors that my ETFs are invested in so rather than a ‘set and forget’ approach, I do keep an eye on their performance and am not afraid to make adjustments if I feel it’s necessary.

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    1. For my ETF portfolio, performance was not really a criteria. I based mine mainly on diversification and fiscal advantages.
      We all make very personal choices. That is what I like about the FIRE people

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  6. Nice breakdown; I especially like the world map! I’m working on getting our stuff switched over to Vanguard and then intend to spread things out between their “Total…” funds to fully diversify across the globe. Thanks for sharing! 🙂

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      1. Hi ambertreeleaves,

        I agree on that. I remember that in J. Sigels book “stocks for the long run” he described that the healthcare and consumer goods sectors generated the best total returns. I have the Plan to focus more on this two … have to do more work about it.

        Keep up the good work
        Greetings
        Valuetradeblog

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      2. “Owning the total world…” I love that!

        I don’t know if it would’ve ever made its way to Belgium (it’s on YouTube though,) but when I was a kid in the 90s, there was cartoon called Pinky and the Brain, and that it the first thing that popped in my head after reading your comment. Every episode, Pinky would ask Brain what he wanted to do today and Brain would always reply, “the same thing we do every day Pinky…try and take over the world!” lol 🙂

        In all seriousness though, I completely agree with you. Owning bits and pieces everywhere is truly as diversified as one can possibly be.

        Liked by 1 person

  7. Hey ATL!
    I think you did a great job to diversify your portfolio! I have lots of consumer cyclical and defensive but also lots of techno and industrial stocks. I’ve made a decision of switching 65% of my portfolio in US dollar back in 2012, best investing decision so far 😉
    Cheers,
    Mike

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  8. Last week it was fancy slides…this week it is fancy charts too huh….now you are in a higher plateau 🙂

    1.
    I like your diversification across two axes:
    + sectors and
    + regions.

    2.
    I was surprised at the regions…it includes most of the countries in the former U.S.S.R 🙂 In my mind, I never considered that. I invest in VTMGX (Vanguard Developed markets International)….for my international exposure and it does not have Russia. I am curious on your rationale for this investment.

    3.
    I would recommend analyzing your portfolio diversification across two more axes:

    + diversification across asset classes (bonds, stocks, real estate, ….)
    ++ https://advisors.vanguard.com/iwe/pdf/ICRPC.pdf

    + diversification of risk itself
    ++ https://humblefi.com/2015/03/31/risk-analysis-of-my-mutual-fund-investments-beta-coefficient/

    Hope that helps!

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    1. Thx for the questions

      2- why that many ex Russia? It is not on purpose. It comes from my plan to be globally diversified. On the other hand: on the map they take up a lot of space, percentage wise, they are small.

      3- my overall asset allocation is detailed in another post. I do have bonds and bond like assets in my portfolio. A rental is missing for now.
      The article on beta is a good one. I have a long outstanding todo to calculate that for my portfolio…

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  9. I personally prefer not to rely on the stockmarket alone. While the individual etfs and stocks can be diversified a lot within the stockmarket, that itself though is globally connected, has it’s own dynamic and is unpredictable. I wrote in Detail about why I think the 4% rule (and investing in he stockmarket alone) is not so safe.
    There is no guarantee for past Trends to continue in the future. Nobody can tell you reliably about the likelyhood of future Trends either.
    My take:
    – build up a mostly passive online business that I have under control and know. Look at MMM, GoCurryCracker, JimCollins etc and their Blog income. While they are the biggest Index/ETF evangelists, their Blogs (businesses) cover all their expenses! Do you know anyone who is actually withdrawing already? Starting to withdraw from your Investments aoumds great in theory but actually doing it, in my opinion…is a different wild animal
    -look into real estate, airbnb: real estate prices were Rock Solid and growing during the last crisis in most cities in German
    – develop a skill you can use to make money anytime

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    1. Agreed with the above. The analysis is only a view on my ETF portfolio. I do have other asset classes.
      Diversification is also needed across sources of income. My end goal for FIRE is exactly that: have a enough sources to cover the expenses and have the 4pct rule as a back up plan. For now, the SWR is a guidance for my progress.

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    2. Great advice Mr W. In other words, the more diversified your portfolio (stocks, ETFs, real estate, and personal skills) the better. I do like that last one about having a skill that will allow you to make money any time.

      And so it’s important for someone like me who has retired early to occasionally use those skills to stay in practice or maintain that skill in case it”s required in the future. Especially so if you have skills in rapidly changing industries such as IT.

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  10. Couple of sizeable index funds we own are Vtsax and Viiix in separate vehicles, 401k and taxable.
    Believer in the fact that majority of successful US companies operate globally hence we have international exposure. James Collins has espoused on this many times and I can see the logic completely.

    We Understand though that EU investors can’t access Vanguard and need to find surrogates for any index funds they like the look of.

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  11. Your portfolio seems very well diversified amber tree!

    I used to try to achieve the ideal diversification but now it doesn’t matter much to me as I am looking for aggressive growth. Thinking about going in 100% technology. My buddies tell me I’m crazy haha

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  12. I really like seeing your exposure world map. Question, Are the companies based in those countries or do they have exposure to those countries?

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    1. It is based on the allocation given in the factsheet from the ETF. It is based on the market where they are listed.
      In reality, I would need to look at their revenue. That is too much effort to do, so I take the lazy approach! 🙂

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  13. It definitely looks very different than my portfolio, consumer discr. and staples make up almost 59 percent of my portfolio at the moment, and I lack exposure to financials, IT, telcos and utilities. In terms of global diversification I have a lot of UK and US based companies but most of them generate a lot of revenue abroad.

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  14. ATL,

    No surprise there with the ETFs you picked! I did the same analysis a while back and came to roughly the same conclusion for my ETF portfolio. My dividend growth stocks is another story, but I consider it pretty diversified too for the time being – it simply takes a bit more time.

    Keep it up!

    Cheers,
    NMW

    Like

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