In short, diversifying sufficiently protects our portfolio, provides possible enhancement of returns, and best of all - allows us to sleep well at night.
Let's consider this portfolio. While it lacks some components of diversification (such as smaller companies, foreign companies, and emerging market companies) the large companies are well-suited to having the probability of providing a steady stream of dividend income to us - a very important consideration. So we are mainly looking to see that we haven't inadvertently selected companies in just one market sector. So let's look at them:
- ATT - Telecom
- Altria - Tobacco / Food
- Bristol Meyers Squib - Pharmacueticals
- Conagra - Foods
- Progress Energy - Utilities
- Reynolds American - Tobacco
- Sara Lee - Foods
- Southern - Utilities
- UST - Tobacco
- Verizon - Telecom
- Bank of America - Bank/Financial
- Citigroup - Bank/Financial
The point is here, that it's currently possible to construct a conservative portfolio that's initially close to cash-flow positive, after borrowing all the money to buy that portfolio. I'll talk about some other possibilities later ...
JW
The Confused Capitalist
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