How I Define "Diworsification"

The dividend increases from the remaining 110+ companies would quickly make up for the lost income from the cuts or eliminations.

Knowing that I’m going to be okay even if a world-class business or two runs into severe problems helps me sleep well at night. I sleep like a baby.

And since I don’t see my level of diversification (which trails the S&P 500) as anything close to worsening my portfolio, it’s a no-brainer.

Concentrating into just 20 or 30 stocks (or less), though, would have me sleeping a lot less soundly.

In that case, a few adverse dividend changes could potentially create some lifestyle challenges. Especially if the same 2-3 stocks were in both samples (which is certainly possible). Since it’s not less expensive or less difficult to construct my portfolio in this way, there’s no reason to do it.

MY DEFINITION OF DIWORSIFICATION

I’ll tell you how I personally define “diworsification”.

This is coming from the perspective of someone who’s been a dividend growth investor for almost a decade now. I’ve successfully invested my way into FIRE at just 33 years old, so I’d say it’s worked out great.

I’m going to define this term within the universe of dividend growth investing (ignoring the aforementioned likes of Bitcoin). I’m talking purely stocks here.

I get emails all the time about the portfolio. One email might go along the lines of asking me why I don’t yet own Stock X, Y, or Z. The very next email will ask me why I own so many stocks. It’s actually quite amusing.

Nonetheless, I hope this article will serve to better clarify my stance on all of this.

I mentally separate diversification and diworsification through one simple question before taking on any new investment:

“Would I be comfortable owning this entire business?”

That’s it.

If I wouldn’t be happy with owning the entirety of the business, if I absolutely had to, I shouldn’t be happy owning even just one share.

I can tell you that I would be comfortable with only owning the entirety of any one single business in my portfolio – if I absolutely had to.

But since I don’t have to, I don’t see any reason to invest like that.

I remember investing in The Coca-Cola Co. (KO) way back in 2010.

I felt so happy acquiring shares in the world’s largest non-alcoholic beverage company. When someone bought a can of Coca-Cola or a bottle of Dasani water, I was earning a small portion of money from that transaction. Still gives me warm and fuzzy feelings to this day.

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If you’re interested in using dividend growth investing to become financially independent and retire early for yourself, check out my two best-selling books on this:  more

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