Question

Please discuss if an investor will be well diversified or not by investing their entire wealth in each of the following stocks:

a) "spy"

b) "Brk b"

c) "qqq"

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Diversification means a reduction in the overall risk of the portfolio when 2 or more stocks are present in the portfolio. The overall risk of the portfolio is less than its weighted average risk of Individual stocks in the portfolio.

how can an investor have a diversified portfolio?

As per modern portfolio theory. There is a Benefit of diversification of risk when non-perfectly correlated stocks are added in the portfolio.

The benefit of diversification is when non perfectly correlated stocks are added then if the stock return of stock falls then it's offset by a rise in the stock return of another stock.

A portfolio of 30 or more stocks is generally considered a well-diversified portfolio.

a. SPY:
It tracks the S&P 500, it invests in 500 stocks.

So it is considered as well diversified.

b. Brk b.
Berkshire Hathaway is a holding company of many companies. It has many stocks in its portfolio.

So it is considered as well diversified.

c. qqq.

It tracks the NASDAQ 100, it invests in 100 stocks.

So it is considered as well diversified.