Is your Portfolio Diverse? 


There are 3,518 stocks in the United States as of September 2013, and the US stocks account for 49% of all global stocks. So as of today there are more stocks outside of the United States than inside. Internationally in developed countries there are 3,389 stocks and in emerging markets there are only 2,603. The total number of global stocks equals 9,510.

When I tell our clients how many stocks there are in the world they are shocked. But the extraordinary investor knows that it is important to invest the core of his or her holdings in United States’ stocks, but also allocate a percentage of them to invest in international and emerging markets. The percentage invested in these other stocks are not large, but they are enough to drive the risk and volatility of a portfolio down while getting higher rates and returns than portfolios solely concentrated in US stocks.

At times it baffles me that many large Wall Street firms will let their clients assume that his or her portfolio is diverse when in reality it is not.

I remember one client in particular to whom this happened. She walked into my office one day and showed me her five million dollar portfolio that was being managed by one of the large Wall Street firms. She assumed that her portfolio was diversified, so I said, “Great! Now, let’s do some research.”

After looking in depth into her portfolio I found that the firm she was with had only invested her money into eighty-two stocks. There are over 8,500 stocks in the world and they had her money in only eighty-four! Let me ask: is that diverse? Not even close. Professionals were telling her that she had a diverse portfolio when in reality she only was investing her money into less than 1% of all possible stocks. That is what we call concentrated positions. Her portfolio had more risk and less returns than it should have. She was not reaching her potential because her portfolio was not globally diverse.