Today I want to talk about diversification in your portfolio. I bring this up because I have noticed that I myself have been guilty of not diversifying enough. This is why it's always important to keep a watch however on what you're buying.
Let's first review what diversification is. Diversification is namely, making sure that your portfolio isn't invested all within the same sector. This is important because different sectors can be hit all at once more often that small stocks are hit alone. The different sectors of the market are as follows:
When I refer to certain sectors being hit hard all at once, I refer to instances such as what is happening right now in the energy sector. Over the last year, the energy sector has been demolished. They have seen a 26.29% drop in just the last year alone. Coming in close second of course is the materials sector which saw a 13.53% drop.
It's important to make sure that one is not too exposed to any one sector. This however is very hard to manage at times because sometimes certain sectors have incredible deals and this is where I am caught with my pants down. In recent past, I have had a little too heavy a hand in the industrial and consumer discretionary sector. In fact, five of the nine stocks that I hold are in those two sectors alone - industrials and consumer discretionary.
Sometimes this is due to the fact that I find myself following the deals and sometimes it's just due to the fact that certain companies that are more easy to see come to my mind. If I see products of a certain company on a daily basis, it's easy to find yourself constantly coming back to them because you are filled with a sense of wanting. I am guilty of this!
With this being said, I want to take action to be more mindful of this in the future. Therefore, I will be adding a column on my portfolio tracker that shows the sector of each stock that I am invested with. I'm hoping that by making it more obvious to myself, I will be more mindful in the future with my picks.