Trading individual company stocks involves significant risks. A slightest miss in revenue goals can strongly affect the price of the company stock. Wise investors never invest all or a large portion of their capital into one single company to avoid those conditions. They usually invest in tens and hundreds of companies. This lies in the fundamentals of capital diversification.
Core Components of Stock Portfolio
Though, it is not always easy to keep track of portfolio that consists of hundreds of stocks. Luckily, there are funds that are built exactly for that one purpose. Those are called exchange traded funds (ETFs). ETFs are funds that are traded on the stock market just like regular company stocks. They’re usually managed by large financial institutions and are covering multiples of billions of dollars in revenue. Fund managers purchase assets and provide natural diversification within the asset class. Some of the examples of ETFs are: SPY, XOP, GLD, XOP, TLT, IYR, etc. As a matter of fact, with our weekly newsletter we are trading those ETFs to generate consistent returns.
The SPY is one of the largest ETFs traded today. It follows the S&P 500 index. That means that a single stock of SPY includes shares in 500 most successful companies in the US. If a company does not perform well it gets replaced by a better one. So, it is designed to appreciate in a long run. EFA is a ETF similar to SPY, but it includes companies from Europe, Australia and Far East.
XOP represents an ETF which follows companies in oil and mining business. It is a more favorable asset to hold compared to OIL ETF since if something goes wrong with oil, most probably those company would be able to transition to new energy source and your investment would be intact.
GLD is an ETF that tracks gold price. TLT is an ETF which tracks US Treasury 20+ year issued bonds. IYR ETF follows US real estate equities listed in US exchanges.