Your ideal investment portfolio mix can include both conservative and aggressive investments—but follow these tips

diversified investment portfolio

There is no “one-size-fits-all” ideal investment portfolio mix. But there are some key portfolio diversification tips that every investor should follow.

Are you trying to determine your ideal investment portfolio mix? Ultimately, the percentage of your portfolio that you should hold in either conservative or aggressive investments depends on your personal circumstances and risk tolerance. An investor with a longer time horizon or without the need for current income from a portfolio can invest more money in aggressive stocks.

Note, though, that our stock selections for the aggressive investor tend to be more volatile than our conservative recommendations, and they can give you bigger gains and bigger losses. This may be due to financial leverage, or to the risk in their industry or particular situation. Keep in mind that these or any aggressive investments should make up only a smaller part of most Successful Investor portfolios.

Building an ideal investment portfolio mix that may appeal to you

Smart investors balance aggressive and conservative investments in their portfolio, in line with their investment objectives, and the market outlook. Above all, they avoid the urge to become more aggressive as prices rise and more conservative as prices fall.

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Different investors may be more comfortable holding a larger or smaller number of investments in their portfolios, including stocks, exchange-traded funds (ETFs), or perhaps even mutual funds. Here are some tips on diversifying your stock portfolio:

  • When it comes to a diversified stock portfolio, stocks in the Resources and Manufacturing & Industry sectors in general expose you to above-average share price volatility.
  • Stocks in the Utilities and Canadian Finance sectors entail below-average volatility.
  • Consumer stocks fall in the middle, between volatile Resources and Manufacturing companies, and the more stable Canadian Finance and Utilities companies.

Most investors should have investments in most, if not all, of these five sectors. The proper proportions for you depend on your temperament and circumstances.

Conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high and generally secure dividends.

Aggressive stocks are typically more highly leveraged (with more debt) and volatile than value or conservative stocks. That doesn’t mean you should avoid aggressive stock investing altogether. Even for conservative investors, there are very good reasons to add some aggressive stocks—in limited quantities—to their portfolios.

More aggressive investors might want to increase their portfolio weightings in Resources or Manufacturing stocks. However, to cut risk, you’ll want to spread your Resource holdings out among oil and gas, metals and other resources stocks for diversification within the sector, and for exposure to a range of commodities.

Meanwhile, examples of aggressive stocks would include junior mining stocks, smaller technology stocks, and penny stocks.

An ideal investment portfolio mix for Successful Investors will focus on conservative investments

Conservative investing is an investment strategy that involves a focus on lower-risk, predictable and stable businesses. This strategy typically involves the purchase of blue-chip stocks and other low-risk investments. A conservative investing approach also means building a well-balanced portfolio gradually, over time. The number of stocks in your portfolio will depend on where you are in your investing career.

In our view, your goal as an investor, particularly if you follow a conservative investing strategy like the one we recommend, is to make an attractive return on your investments over a period of years or decades. Failure means making bad investments that leave you with meagre profits or losses.

In hindsight, market downturns are easy to spot. Spotting them ahead of time is much harder, and impossible to do consistently. After all, if you could consistently spot market downturns ahead of time, you could acquire a large proportion of all the money in the world, and nobody ever does that.

Building an ideal investment portfolio mix: 40 stocks is a good upper limit

When you get above $200,000 or so, you can gradually increase the number of stocks you hold. When your portfolio reaches the $500,000 to $1-million range, 25 to 30 stocks is a good number to aim for.

Of course, you may fall a few stocks below that range, or go a few above it, particularly when you’re making changes to your holdings. That won’t matter if you follow our three-part Successful Investor approach.

Our upper limit for any portfolio is around 40 stocks. Any more than that, and even your best choices will have little impact on your personal wealth.

Use our three-part Successful Investor approach to determine your ideal investment portfolio mix

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Some investors’ temperament changes throughout their lifetime, often becoming more conservative with age. How has your ideal investment portfolio mix changed over the years?


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