This trivia question gets at a confusion I see a lot among newer investors. Investors will ask something like “I have a target date index fund in my 401k, should I buy something different in my Roth IRA to be more diversified?”. My answer to that is, nope! A target date index fund is about as diversified as you can get among all stocks and bonds in a single package. In fact, buying something different is likely to leave you over concentrated in a single area, throwing off the balance of your portfolio.

More ticker symbols doesn’t necessarily mean more diversification. Even though Rebecca has EIGHT different investments, seven stocks and an ETF, her portfolio is actually HYPER concentrated. She ONLY owns huge US-based tech companies. Of the 10,000 or so publicly traded stocks in the world, Rebecca is only investing in 34 and they’re all very similar to each other. That means they’re at risk of all crashing together.

On the flip side, Rachel is investing in ALL TEN THOUSAND STOCKS. Instead of just being in tech companies, Rachel is investing in tech plus energy, materials, industrials, consumer discretionary, staples, health care, finance, communication, utilities, and real estate. (Did you know the best performing sector since February is UTILITIES? Who called that back then? That’s why it’s good to own them all). Also instead of just US companies, Rachel owns companies from 47 countries. Instead of just HUGE companies, Rachel owns thousands of small and medium companies you’ve never heard of that just might be the next Amazon/Tesla/Nvidia, whatever.

It’s important to understand what is contained within the ticker symbols you’re buying and not to fall for the trap that more is better!

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy