A diversified enough?

[QuarterMillionMan]

I may not be well diversified. My holdings include; UNG, GLD, PPLT, SLV, and physical gold & silver. Would you consider this to be overweighted in precious metals and commodifies ETF's?



Edited to add: Title should be, Am I diversified enough?

[bjl584]

It depends on your net worth, your age, your goals, your years to retirement, and your tolerance for risk. You will ned to provide more info.

[QuarterMillionMan]

It depends on your net worth, your age, your goals, your years to retirement, and your tolerance for risk. You will ned to provide more info.

Alrighty then. I'm a 46 yr old male, no kids. Net worth is upwards of $250,000, closer to $300,000. I live within my means (ie, rarely eat out and do most cooking at home, wash my own vehicle with a bucket of water vs taking it to the car wash, fired my phone company AT & T and switched to Magic Jack plus), no student loans (Master's degree in social work), no credit card debts (paid off every month). Recently paid off my 2007 Dodge Dakota. The only loan I have is a $38,000 mortgage on a condominium with an assessed value of $160,000. My risk tolerance fluctuates being speculative on some days and conservative on other days. I try to be realistic about retirement and at the rate I'm going I'll probably have to work until I'm 80 in order to retire with about 70% to 80% of my current income. Too many times I hear people wanting to retire at 60 but they don't have the means to do so (wishing or hoping is not a sound retirement plan).

[smk]

i don't think it is possible to provide specific advice over the internet on diversifiation because the info you provide is just not going to be enough. to give you some idea, in the 1980's they used to say 20 different stocks were sufficient to gain most of the benefits from diveersification. then the volatility increased dramatically and companies with problems did not fall 15%, but 90%. i think the math is more like 100 different stocks to genuinely gain the benefit of diversification. this suggests people with limited time to pick stocks may need to use etfs/mutual funds for part or all of your holdings.

as for overweighting in commodities, the first thing to look at is how much you spend on commodities. they can be used as a hedge against rising prices of items you need to purchase. their effectiveness as a general inflation hedge has been criticized. other than that, i am not sure why you are investing in them, but that's up to you.

[jpg7n16]

I may not be well diversified. My holdings include; UNG, GLD, PPLT, SLV, and physical gold & silver.

aka - your portfolio holdings include, 1 gas company, 1 gold etf, 1 platinum etf, 1 silver etf, and then physical gold & silver

Your other post says that the majority of your net worth is in real estate.

Would you consider this to be overweighted in precious metals and commodifies ETF's?

Yes. Precious metals typically should be no more than 5-10% of the overall portfolio. (portfolio, not net worth)

From what you've said here, they probably are the vast majority of your portfolio.

Am I diversified enough?

No. You have 1 company, and the rest in precious metals. Why would you feel that would be well diversified?

General advice for how to diversify is to have no more than 5% of the portfolio in any one company.

You should also read through this site from the SEC: Beginners' Guide to Asset Allocation, Diversification, and Rebalancing

[Petunia 100]

I may not be well diversified. My holdings include; UNG, GLD, PPLT, SLV, and physical gold & silver. Would you consider this to be overweighted in precious metals and commodifies ETF's?

Edited to add: Title should be, Am I diversified enough?

What else do your holdings include?

In terms of your entire portfolio, how much do these holdings represent?

[BuckyBadger]

You are the exact opposite of diversified.

I would recommend that you get into a three fund portfolio that includes total US stock, total US bond, and total international stock.

By using only those three funds -- in an asset allocation ratio that is appropriate for your age, your goals, and your risk tolerance -- you can be well diversified with a very minimal amount of effort. My portfolio takes me about two hours a year to manage.

Contribute regularly to your retirement funds, rebalance a couple of times a year, and if you can increase the amount you are contributing you may be able to retire long before you are 80.

[QuarterMillionMan]

What else do your holdings include?

In terms of your entire portfolio, how much do these holdings represent?

The holdings that I've illustrated above represents about 33% of my net worth (investment accounts and retirement accounts). My real property would account for another 33% of my net worth. And my remaining 34% of my net worth I keep in emergency funds (cash, foreign currency, physical gold/silver bullion). My total net worth is about $300,000. I'm curious as to what letter grade one might assign to me given these facts in regards my future retirement forecast. I have also earned enough social security credits to receive approx $1000 a month upon attaining age 67 (however I'm not even counting on social security being in existance in 21 years from now but if it is better yet). My grade that I would give myself would be a "B."

[smk]

well, it's creative...i'll give you that...

i wonder how well the metals will match up against your future expenses. probably not well. i have no idea why you are doing that, but there must be some reason. as for a grade, if you have enough money to retire and can live well, i'll give you an A. if you don't, i'll give you an F...

[Petunia 100]

The holdings that I've illustrated above represents about 33% of my net worth (investment accounts and retirement accounts). My real property would account for another 33% of my net worth. And my remaining 34% of my net worth I keep in emergency funds (cash, foreign currency, physical gold/silver bullion). My total net worth is about $300,000. I'm curious as to what letter grade one might assign to me given these facts in regards my future retirement forecast. I have also earned enough social security credits to receive approx $1000 a month upon attaining age 67 (however I'm not even counting on social security being in existance in 21 years from now but if it is better yet). My grade that I would give myself would be a "B."

In my opinion, no, you are not diversified at all.

According to Modern Portfolio Theory, you are not diversified.

Do you have a reason for avoiding broad market indexes?

[smk]

according to modern portfolio theory, you create an efficent frontier of assets versus the risk free alternative. for individual investors a series of TIPs matching their expenses is the closest proxy to their riskless asset. risk tolerance from the riskless asset is then assessed which MAY allow for the inclusion of stocks in broad market indices. tolerance can be judged by a utility function (which most ignore), a survey or looking at the lifestyle in current dollars based upon projected scenarios (typically monte carlo based or historical). modern portfolio theory does not suggest someone SHOULD be investing in broad market indices...

[Petunia 100]

according to modern portfolio theory, you create an efficent frontier of assets versus the risk free alternative. for individual investors a series of TIPs matching their expenses is the closest proxy to their riskless asset. risk tolerance from the riskless asset is then assessed which MAY allow for the inclusion of stocks in broad market indices. tolerance can be judged by a utility function (which most ignore), a survey or looking at the lifestyle in current dollars based upon projected scenarios (typically monte carlo based or historical). modern portfolio theory does not suggest someone SHOULD be investing in broad market indices...

Agreed. I did not state otherwise.

According to Modern Portfolio Theory, one diversifies by holding different asset classes. Do you disagree with this statement? If so, why?

[smk]

According to Modern Portfolio Theory, one diversifies by holding different asset classes. Do you disagree with this statement? If so, why?

this question is tangential to my point. however, you can get diversification benefits from investing in different asset classes IF their correlation is materially lower than 1. 2008, 1987 and the early 1980's are periods when that did not work - so there were no diversification benefits. other periods were better.

the problem is that when moving a portion of your portfolio from a risk free asset to stocks, and diversification benefits to lower risk would normally be swamped by the increased risks of having the position in stocks. so diversification is a minor point here.

[kv968]

according to modern portfolio theory, you create an efficent frontier of assets versus the risk free alternative. for individual investors a series of TIPs matching their expenses is the closest proxy to their riskless asset. risk tolerance from the riskless asset is then assessed which MAY allow for the inclusion of stocks in broad market indices. tolerance can be judged by a utility function (which most ignore), a survey or looking at the lifestyle in current dollars based upon projected scenarios (typically monte carlo based or historical). modern portfolio theory does not suggest someone SHOULD be investing in broad market indices...

this question is tangential to my point. however, you can get diversification benefits from investing in different asset classes IF their correlation is materially lower than 1. 2008, 1987 and the early 1980's are periods when that did not work - so there were no diversification benefits. other periods were better.

the problem is that when moving a portion of your portfolio from a risk free asset to stocks, and diversification benefits to lower risk would normally be swamped by the increased risks of having the position in stocks. so diversification is a minor point here.

Diversification IS a major point since most people NEED that risk, and the return that may come from, in order to grow their money to a beneficial level by the time they hit retirement.

I understand using TIPS to match future expenses could arguably be the best way to avoid risk however in order to match those future expenses I'd need that money now since the "risk-less" investment (TIPS in this case) would only basically keep up with inflation.

In other words, if I need $500k in today's dollar's to retire with techincially I'd need $500k right now to put in the TIPS in order to have that amount when I do retire. I, nor dare I say most, can't match retirement money like that hence risk is taken so a much smaller amount of money today will grow into that $500k.

[smk]

Diversification IS a major point since most people NEED that risk, and the return that may come from, in order to grow their money to a beneficial level by the time they hit retirement.

I understand using TIPS to match future expenses could arguably be the best way to avoid risk however in order to match those future expenses I'd need that money now since the "risk-less" investment (TIPS in this case) would only basically keep up with inflation.

In other words, if I need $500k in today's dollar's to retire with techincially I'd need $500k right now to put in the TIPS in order to have that amount when I do retire. I, nor dare I say most, can't match retirement money like that hence risk is taken so a much smaller amount of money today will grow into that $500k.

if you look at the numbers, when you increase froma zero risk weight to say 20% in stocks, say you go 50-50, your risk goes to something like 10%. by diversifying within stocks at the same 20% risk level you might bring it down to 9%. the major move is from 0 to 10% area and diversification is compartively minor with a 1% benefit. that was the point.

i think TIPs returns since they were originated in 1997 were in the range of inflation + 2-2.5%. that probably would not happen now if you bought 30 year TIPs, but over the long run you could argue you can do better than 0% even after taxes.

i hate to say it, but it looks like you are arguing that people who are vulnerable and may not be able to accumulated enough wealth to retire need to throw caution to the wind and speculate in the stock market. so far that play has not worked out so well for the defined benefit pension funds. instead they could look to cut expenses, move to a no tax state, play with the timing of their pension distributions, try an inflation protected annuity when they get older, fnd a job they really like and do it into retirement. there are other options...