Level 2 — DiversificationPAIDThe other markets and sectors I hold
Start with the S&P 500 foundation, then layer a handful of other markets and sectors on top — to capture returns from elsewhere and spread the risk of owning just one market.
Here we keep our foundational S&P 500 ETF as the core holding, and add some more ETFs covering different markets and sectors.
The point is twofold: to capture additional returns from markets that aren’t the US, and to spread the risk that comes from being invested in just one market. These are in addition to our core S&P 500 holding, not instead of it.
The way I work is that all of my capital goes into the S&P 500 unless I have a better use for the money. That is my default investment. If I have nothing else to do with the money, it goes in there. As I see opportunities emerging, I may divert some of the capital into them to capitalise.
How much you keep in the core holding, and how much you put into the other funds or stocks — the “allocation” — is up to you. It depends on how convinced you are of the other opportunities, how many there are, and your own appetite for risk.
I am not a financial adviser. I don’t know your personal circumstances, so I can’t advise you. All I can do is show you what I do myself — but bear in mind I’m what you’d call an aggressive investor, with a big appetite for reward and a high tolerance for risk. My allocations may not be right or comfortable for you.
Start cautiously. Stick mostly to the S&P 500 at the beginning, then branch out with small amounts at first, until you get comfortable.
As an example: I tend to hold around 50% in the S&P 500 and other ETFs, and 50% in individual stocks or equities (which I cover in Level 3 — Outsized Returns). Within the ETF half, I’d tend to hold about half in the S&P 500 itself, and the other half across a number of ETFs covering particular markets or sectors. Again, the precise allocation is up to you.