Too many shares?
Is it possible to have too many shares of one stock in a portfolio? — W.L., Worcester, Massachusetts
Pay little attention to the number of shares. What really matters is the total value of your stake in each company, and how it relates to your total portfolio value. There isn’t much difference between owning1,000 shares of a $10 stock (total value: $10,000) or 200 shares of a $50 stock (total value: $10,000).
Don’t let any single stock grow to represent a large percentage of your portfolio, though, because it’s risky to be overconcentrated. If 25% of your portfolio is in the stock of a single company and that stock takes a dive, your portfolio will be hit hard. But it can also be counterproductive to have your money spread across too many companies: If you have only1% of your portfolio in a stock that triples in value, it won’t make a huge overall difference. Focus your money on your best ideas. For many people,10 to 20 stocks is a good number of holdings — enough for diversification, but not more than you can keep up with.
I’m thinking that since I’m single, I don’t need life insurance. Right? — B.D., Warren, Ohio
Generally, true: The purpose of life insurance is to protect anyone who depends on you financially. The classic example is children, and it’s smart to carry term life insurance from their birth to when they can be financially independent. Your spouse or your parents may also depend on your income, as might a family business. If your funeral expenses can be paid for and no party would be financially hurt if your income disappears, you can probably do without life insurance.
ETFs for dividends
If you want dividend-paying stocks for your portfolio, you could study the vast universe of stocks and find great ones on your own, or you could plunk your dollars in one or more dividend-focused mutual funds (which often have the word “income” in their names). Another good option is investing in dividend-focused exchange-traded funds (ETFs), which are like a cross between mutual funds and stocks — funds you can easily invest in through most brokerages. Here are some top dividend ETFs to consider:
ProShares S&P 500 Dividend Aristocrats ETF (NOBL). This ETF holds the stocks in the Dividend Aristocrats index, limited to companies with at least 25 consecutive years of dividend payments — and dividend increases. The ETF recently sported a fiveyear average annual return of almost 9.6% and yielded 2.3%.
Schwab U.S. Dividend Equity ETF (SCHD). This ETF tracks the Dow Jones U.S. Dividend100 Index by holding the same stocks. That index focuses on companies that have paid dividends for at least10 consecutive years, and only includes those that seem healthy, with meaningful dividend yields and dividend growth rates. The ETF recently sported a five-year average annual return of10.6% and yielded 3.4%. Vanguard High Dividend Yield ETF (VYM): This ETF tracks the FTSE High Dividend Yield Index, which includes many U.S. stocks with aboveaverage dividend yields. Since a high dividend yield is often due to the stock price having fallen, focusing on high yields tends to fill the index with relatively undervalued stocks, including many from the financial services, health care and consumer defensive sectors. The ETF recently sported a five-year average annual return of 6.6% and yielded 3.6%.
Remember that simply investing in a low-fee, broadmarket index fund that tracks the S&P 500, such as the SPDR S&P 500 ETF (SPY), will also deliver growing dividend income. That particular ETF recently sported a five-year average annual return of almost 11.6% and yielded nearly1.6%.