Diversification Strategy (a.k.a. Portfolio Sizing) are the key point for our investment to be success. Never invest everything into 1 counter even though you have 100% confidence level because there is still thing that can't predict by us such as natural disaster, political variable that will impact the company you hold. Covid-19 that happen in 2020 is one of the best example.I strongly encourage on portfolio sizing because I did suffer in loss of 40% of my capital due to overweight in one counter that I so confidence on it. That why I come out with my diversification strategy.
How to design our portfolio?
There are 2 Level of portfolio I using, income level portfolio and investment level portfolio. For income level portfolio is Non-investment related but more on my daily necessity and serve the purpose for me to no need worry on my investment.
Income Portfolio:
All my income is split into 4 part, Expanses, Insurance, Saving and Investment with a ratio 6:2:1:1 (will change whenever income increase.) The key is not about Ratio, but about Isolate your investment fund and your lifestyle fund.
Expanses, Insurance and Saving are lifestyle fund to support all kind of event in my life, study, marry, having children, urgent hospitalization and so on. Which say, even my investment fail and left nothing, I still can continue my life without issue(but not luxury of course). With this design, I can ensure my investment fund is not for urgent use, thus I can have stronger holding power and less panic whenever market crash happen.
Pain first but greater gain later? or Gain first and greater pain later
Investment Portfolio：
For investment portfolio, I do it in 2 level. First, I try to hold 2 combination of stock, which are "Stable/Dividend Stock" (lesser risk,lower gain) and "Growth/Capital Gain Stock"(higher risk, higher gain). Then 2nd level, I do it by holding different stock from different industry and country.
Ratio for my 2 Combination of Stock:
I try to maintain 70:30 or 60:40 ratio for "Stable/Dividend" : "Growth/Capital Gain" (depend on which stock hit the under value condition first, but 60% of the fund need to be in secure place - Cash form or Stable company).
My final target is to build strong Dividend portfolio, but by pure dividend counter, to hit 8% per year not that easy, as every month I will continue pump $ to my investment fund. Actually, this is a cycle.Capital Gain from Growth Stock can allow me purchase more Dividend Stock, then dividend from dividend stock allow me to purchase more Growth Stock. The key is, don't violet that ratio.
Stock from different Industry and Country:
By choosing different Industry, your portfolio can have a stable performance. Example Covid-19 cause most of the Office Reit, Shopping Mall Reit underperform, but technology stocks pick up due to increase of demand from working remotely and various e-commerce adaptation.
By holding different country's counter allow us mitigate some of the country level risk such as currency risk, political risk. Best example will be Trade War during 2020 have led to US start to sanction China related company and industry. This action had benefits certain US company. By holding stock from both countries, we actually balance the impact. Gain from US Stock can use to purchase China related stock or vice versa.
Summary
There is not right and wrong for diversification strategy, there is also don't have any golden ratio for portfolio sizing. Evaluate your own risk appetite and find the best ratio/strategy that suitable to you. Don't put all your eggs in one basket is correct. Don't put only 1 egg for each basket is also correct.
But I suggest "Put the Right Eggs in the Right Basket".