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Investments - Strategies

New Trend to Investing: Concentrate Your Bets, Shun Diversification

November 26, 2019

[Chart, S&P 500 Performance - 1950 to 2016 / Wikipedia]



by Howard Haykin



The stock market is up 24% this year, and thanks to 'passively managed, diversified index funds' millions of investors have participated in this rally. [year-to-date results for S&P 500 Index, as of 12/4/19] These funds provide broad market exposure and low costs - something investors might not otherwise get if they had to pick their own stocks. So, for example, an S&P 500 Index fund gives investors exposure to the returns of all 500 stocks in that index for a nominal fee. 


The success and enormous popularity of passively managed funds has prompted a growing number of investment advisers to 'change their stripes' when it comes to investing. Their 'actively managed funds' are not as diversified as they used to be - holding just 15 to 35 stocks instead of the usual 50 to 100 stocks. This departure from 'conventional wisdom' - which “holds that the safest portfolios are highly diversified and spread across a considerable number of assets” - has produced mixed results, at best.



WHAT DIRECTION FOR INDIVIDUAL INVESTORS?    Investors with modest portfolios and little knowledge about stock markets or individual stocks should invest in passively managed, diversified index funds. They're readily available through no-load mutual funds and exchange-traded funds. And, all the while, be mindful that ... matching the performance of stock markets is not just okay, it's smart investing.



[For further details, click on WSJournal, December 2. (subsc required)]