“How many investments do I need to be diversified?”
Maybe as few as one.
Diversification is one of the most important tools in managing risk within an investment portfolio. Diversification comes in many forms. You might invest in many (twenty – 20 – or more) different stocks from many different sectors of the economy. You might use a number (eight to fifteen typically) of different types of mutual funds and/or exchange traded funds to gain significant diversification. Or you might use one mutual fund that provides broad diversification across many economic sectors. Target Date Retirement Funds are one type of fund with that intention. There are certainly others.
How do you choose what method of diversification is correct for you? Start with the size of your portfolio. A small number of dollars might require you use one fund to meet the fund minimums. Also consider how much time you have to monitor your portfolio. Stock portfolios require daily monitoring. If you don’t have the time you shouldn’t consider that as an option. Evaluate your willingness to accept risk. Mutual funds and exchange traded funds offer much broader diversification and might reduce your risk a bit.
Make sure your investment strategy fits you and your goals.
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