What is BetterInvesting's recommendation for portfolio diversification by company size?
According to the "Using Portfolio Management Wisdom Handbook" (p. 19), BetterInvesting suggests diversifying into 25% large company stocks for stability and moderate growth, 50% in midsized company stocks for a good mix of risk and return, and 25% in small company stocks to boost return. Diversification by size can be tough, as good small companies can be difficult to find and tricky to analyze. Then, if they are successful, small companies become midsized or even large companies. Fortunately, diversification by size is the least important diversification target. Many midsized and large companies provide sufficient growth to reach your portfolio return target. Depending on your tolerance for risk, you can adjust the percentages to increase or decrease the overall risk and return percentages for your portfolio.For assistance in discovering small company stocks that fit the Stock Selection Guide (SSG), there are a couple of options.
- Use the 'Small Company' screen in the Online Stock Tools Suite Screening Page.
- ICLUBcentral (a subsidiary of BetterInvesting) publishes the monthly "SmallCap Informer" newsletter. BetterInvesting members are eligible for a subscription discount using promo code BETTER. More information is available at www.smallcapinformer.com.
