Am I diversifying if my investment portfolio consists of stock market (direct investment) and mutual fund/UITF using Equity Fund (indirect investment in the stock market)?

July 7, 2012 | By Fitz | Filed in: Investing.
Hi Fitz,
I have already started investing directly to the stock market using peso cost averaging method and only buys shares of blue chips companies in different industries. My objective is for retirement, time frame is at least 25 years from now (I am 24 years old), and risk tolerance is aggressive. However, I am also setting aside part of my savings for future “big” spending such as down/full payment of house and lot and car, wedding, insurance for kids. That would be my next objective. Time frame would be 6 to 8 years from now and my risk tolerance is from low to moderate. I am considering investing in the mutual fund/UITF to further diversify my investments. My question would be:
1. Am I still diversifying if I am already directly investing in the stock market but will also invest in mutual funds/UITF through the Equity fund program?
2. Given my second investment objective, time frame and risk tolerance, where will you personally suggest to place my savings?

Your reply will be very much appreciated. Thank you.
 



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3 Responses to “Am I diversifying if my investment portfolio consists of stock market (direct investment) and mutual fund/UITF using Equity Fund (indirect investment in the stock market)?”

  1. patrick says:

    I admire you Enzo at a very young age you are already in investing community.
    You have all the time on your side – so enjoy life!

    If you carefully selected your stocks and each sectors were represented very well
    this is already similar to MF (Equity Funds; check again your MF prospectus).
    It doesn’t matter where you are heavily invested, as long you do it regularly.

    My unsolicited advise is, just do first those things meant for singles and plan the
    rest with your future spouse. It is more fun doing it together 🙂

  2. PinoyFinancialCoaching says:

    @Enzo , from my perspective you are not properly diversified. You are only spread you investments in paper assets (equities like stocks, MF and UITF are alike).

    If the stock market collapse, for sure, all of your paper assets are affected.

    The proper way to diversify is go for non-correlated asset class like (1)paper assets, (2)real estate, (2)business and (3)physical assets or commodities.

    Note: Take time to acquire knowledge in using these various assets before you put your money, though, as there’s advantage/disadvantage yuo need to look at..

  3. frugalninja says:

    1. Am I still diversifying if I am already directly investing in the stock market but will also invest in mutual funds/UITF through the Equity fund program? – investing in mutual funds/UITFs is already a form of diversification. Investing in various stocks spread across different industries is also a form of diversification. While it is ideal to go for non-correlated assets classes like what PinoyFinancial Coaching stated, it may not be something that can easily be done by a beginner specifically since you might not have enough funds yet to purchase real estate or put up a business.
    2. Given my second investment objective, time frame and risk tolerance, where will you personally suggest to place my savings?
    This second question is actually a brain teaser. Since risk tolerance is low to moderate it may be good to invest in a bond fund or balanced fund. However the time frame looks a bit tight. It would be interesting to know which among the items you have listed (down/full payment of house and lot and car, wedding, insurance for kids) is your top priority. It would also be great if you have an estimate of how much you’ll need for each goal (like 400K for house and lot downpayment, or 300K for wedding, or 800K for a car, etc). This will help determine how much you need to allot each month to invest and which investment vehicle can help you reach your goal given the time horizon you are considering.

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