How to diversify?

Question

I want to invest in the SPY (SPDRs), an ETF that imitates the S&P 500 index.
Don't want to invest in individual stocks now.

How should I diversify?
Buy other index-ETFs?

Like the Dow Jones and Nasdaq?
And even those perform similarly to the S&P 500

Answer 1

If your goal is to diversify in the stock market, then yes, SPY should give you a good start. There are some other ETFs you might consider as well since they're not all movingt the same at the moment.

DIA (the dow) has been very strong over the last six months or so and might be one to have a little bit in. NASDAQ (QQQQ) is one that's been pretty sideways lately.

RUT (IWM) russel 2000 just broke out of very significant resistance at 800 level recently and appears to be holding it. It could be the index that legs up next, but that would depend on your investment horizon (weeks vs. months vs. years).

Doesn't hurt to pick a few indexes though.

And if you had a hankering for wanting some idustry sectors, those are also very widely available, but would take a little more time to manage.

Let me know if you have any questions. Good luck!

Answer 2

You'll be very well diversified with SPDRs. It's 500 of some of the best companies in the US. Almost all of S&P 500 companies are in the Dow and the Nasdaq.

The only better way would be by buying an International companies' ETF or a mid-cap or small-cap companies mutual fund or ETF.

Answer 3

You could certainly diversify beyond the S&P 500 index... but I feel you have plenty of diversification with SPY. You certainly have covered equitities in terms of diversification. Yet, you can diversify further... how about a well-diversified bond fund? That way you have both stocks and bonds covered... a nice balance for the conservative investor interested in diversification. Plenty of bond funds are available... you can even search Yahoo Finance for bond funds and find the ones you feel comfortable with. To further diversify, you might consider investing in real estate through REIT's (Real Estate Investment Trusts). You can search for those as well, and they trade on the major exchanges. I don't recommend investments in gold or silver funds, but you could diversify there as well. There comes a point that the diversification you seek will be comfortable... and it's important you are able to sleep at night. Me? I own about 35 stocks in various industries... that's diversified enough for my comfort level, but certainly not for others.