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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Diversification and Noah's Arc

Words of Wisdom from my man Timmy...

"Sometimes, when it comes to diversification, people want to adopt the Noah’s Arc approach and own a little of each sector. That is not how diversification should be practiced because all sectors of the economy are not equal when it comes to creating long-term wealth. There is a hierarchy. The sectors that have historically beaten the market are tobacco, electric utilities, chemicals and healthcare, food, and railroads. The sectors that have underperformed the S&P 500, but generally hold pace with the market as a whole, are: household goods, telecommunications, industrials, and non-electric utilities. The sectors that trail the S&P 500 by a sizable gap are: paper, steel, textiles, and shipbuilding."

It’s far better to go through life with a collection of healthcare stocks, food stocks, energy companies, utilities, an occasional tobacco investment, a telecom or two, and a few niche companies like Disney, Visa, Tiffany, and Nike rather than thinking you have an obligation to own every sector of the economy in your portfolio. The long-term records are so divergent that the difference between the cluster of best sectors will give you a much better lifestyle than what you’d get making investments in the worst sectors. Over long enough periods of time, it eventually makes a $1.9995 billion difference
New post on: The Financial Home Of Tim McAleenan Jr.

Amen....tb

Comments

  • Great post, Tampy! Lest we forget.....
    the Pudd
  • The user and all related content has been deleted.
  • edited April 2015
    I'm not diversified in terms of sectors. I do think that there's absolutely nothing wrong with that, you just have to be willing to have periods where certain sectors/themes may underperform.

    If you want to have all Asia (for example) and have a thesis as to why, that's fine, just be prepared to stick with it because there's going to be periods where it will underperform or just not do well. If you want to be in all high dividend stocks, fine, but just be prepared for times where that's out of favor (although at least with that you'll be collecting dividends.)
  • I'm going thru it right now with consumer staple and defensive: some of my major holdings: P&G, WMT, KO, JNJ,GE are all having miserable years, but I'm not going anywhere (selling), They will be back, Luckily My Health care has kept me making money
  • The correct spelling is ark. Arc is a geometric shape.
  • With respect to the original post, allow me to observe that it exceeds the 40-word limit by an appreciable amount and therefore, according to the poster himself, is invalid.
  • Old_Joe said:

    With respect to the original post, allow me to observe that it exceeds the 40-word limit by an appreciable amount and therefore, according to the poster himself, is invalid.

    LOL.
  • @Old_Joe

    ---Ya mean, this limit applies to "cut and paste", too ???

    Or is "govenor" a better word, versus limit???

    Nah, govenor applies to motors and is probably not the proper use of the word for writing applications.

    I just don't know.

    I have to leave the area now, to install a port hole in a bass drum.

  • I could give you "links" so you have to read thru a bunch of filler stuff, or you can get the important stuff in a Quote from the article...saving your time if that is important?
    But if you are conditioned to links that's ok....
    John wins the spelling Bee...good work
  • @Maurice
    Guggenheim Investments seems to be the one who has the most equal weighted etfs, there are 14 of them. I have RHS, which is beating the my other consumer staple etf XLP 6 of the last 9 years. There are more than a few equal weighted indexes that beat the market weighted ones, they are the most basic of the smart betas etfs. But most of my equity portion is still in managed funds.
  • @slick: Equal Weight Index Funds are a mixed bag, some work some don't. What I don't like about them is quarterly rebalancing costs, higher ER's, lower dividend yield, and they are not tax efficient.
    Regards,
    Ted

  • edited April 2015
    The user and all related content has been deleted.
  • edited April 2015
    Compare RPG and RPV performance with SP500 and with RSP for that matter. Some appear to work quite okay, is the point. If I were indexing more and not (maybe foolishly) following active and algorithmic management in retirement, I would put most of my equity moneys into those two plus SCHD.

    I kind of like the typo arc as the course, not the vessel.
  • Noah's Arc. I'm just grinning, here. A measurement of the angle of rainbows, maybe. Eh? What?
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