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Hello Fools!

I am another beginner--I have just started researching strategies, companies, etc. I think DRiP investing would be the best option for me--I'm 20 years old and retirement is many, many years away. I have been reading through everyone's posts and many articles about diversifying my DRiP porfolio. I am not quite sure about all of the categories/sectors(?) available to me and which ones are necessary for a diverse portfolio. I've written down oil, tech, telecom, utilities, food/drink, financial, retail, consumer products, drugs, and healthcare. I think overwhelming is an understatement!! Does anyone have any suggestions of 4 or 5 sectors I should concentrate on for my first portfolio? Thanks and I look forward to any "foolish" response!

Suzanne
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Does anyone have any suggestions of 4 or 5 sectors I should concentrate on for my first portfolio?

Well, you'll get this opinion from one who does not necessarily follow this sort of thing.

The purpose of diversification is to mitigate risk. When you dollar-cost your purchases, you are reducing your risk. You are also probably (hopefully) already maxing out your 401K or other employer's matching plan, so your money is probably going into a diversified fund (mine goes into an S&P500 fund). How much risk do you really need to reduce?

Before blindly selecting sectors in which to diversify, I would recommend that you establish a strategy (http://www.fool.com/dripport/2000/dripport000613.htm).

Once this is done, the company selection will simply be a matter of selecting companies that fit the profile that you wish to establish. As it turned out, my strategy had me select one third of my selections in the health sector. So much for "diversification," but is it really needed in this situation?

Cheers -

george
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UFSuz99,
GLSmyth is right on the money in his post #19275. My only comment to you is where you said...

>>> I'm 20 years old and retirement is many, many years away. <<<

Depending on your current lifestyle and considering your future lifestyle, and how aggressively and prudently you save and invest, retirement doesn't have to necessarily be many, many years away. Starting now is the key.

Then again, retiring at 40 would definitely SEEM many years away to someone half that age.

Welcome to the board!

Please stop by if you need further assistance. I am only online on weekends, but most of these good people are here through the week as well and for the most part really seem to actually enjoy offering assistance.

exilion
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If you do not want to RISK in investing in one stock in a sector. You can invest in Exchange Traded Funds (ETFs)

http://www.amex.com/indexshares/index_shares_over.stm

There are ETFs for different sectors

http://www.amex.com/indexshares/index_shares_sector.stm

Also ETFs for different stock indexes

http://www.amex.com/indexshares/index_shares_broad_based.stm
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I take a more textbook approach to diversification and asset allocation. Dollar cost averaging is neither.

DCA will reduce the risk of poor market timing but does not achieve the goal of investing in different sectors and assets. Dollar cost averaging an underperforming investment still underperforms.

Look at the recent history of chemical, oil and bond investments in relationship to a historic 12% annual return for stocks in general. Over the past 3 years, chemicals have underperformed, oil outperformed and bonds have done OK. Dollar cost averaging excellently managed companies in any one of these sectors should have experienced the same risk as the sector as a whole.

The goal of investing should not be to take on more future risk than the invstor feels confortable with. As investors are optomistic by nature, no one's crystal ball is perfectly clear. Diversification across sector lines reduces the risk of being over-invested in the most underperforming sector. The trade off is a possible under-investment in the most overperforming sector. Within the choices of stock purchases, dollar cost averaging reduces the risk of market timing and assists smaller investors to "get in the game".

The ultimate would be 10 investments, one in each of the eight industrial sectors and two in long maturity TIPS. From that base selection, the DRIP investor can pick and choose those investments which he/she believes are the best value at any given moment.

Geo Fisher
Power Investing with DRIPs
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UFsuz99,

Now to answer your question of which 4 - 5 sectors, in my opinion, in order of today's market value:

Financial (prefer asset management), Industrials, Non Cyclicals, Cyclicals and Utilities

Geo Fisher
Power Investing w/ DRIPs
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Hi, Suzanne!

Welcome to the Fool and the direct investing discussion!

I'm much more in favor of looking for strong businesses to invest in and not focusing on industries or diversification. I continue to feel that diversification for diversification sake alone is dilutive to wealth.

But what's really important is your individual comfort level. However many companies and/or industries it takes to put you at ease is what you should go with.

Thanks for posting and Fool on!

Vince
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I couldn't help but notice that everyone is avoiding answering your question. Therefore, I am going to creep out on a limb and attempt an answer...

With the current situation for utilities, I would say this sector would be a must to consider. Duke Energy (DUK) is a very strong contender in this area. They service a growing market...North Carolina is very much like Florida in that the elder community considers it a retirement area. Management seems to have an excellent plan for the future...

Oil stocks used to be considered the best bastion for investment. With XOM's recent bold move to split its shares 2-1 and to hike dividends, they seem to have a confidence moving ahead.

Banks always do well after the amount of Fed cuts that we have seen as of late. A small cap bank such as TrustCo...or a wobbly bank working to change its future like Bank One would do nicely.

There will be a shakedown in the telecom community, but I strongly suspect BellSouth (BLS) will do very nicely. There plans are more than competitive and they do serve a growing market that is far from reaching its potential...again that NC market is a part of their territory.

I do like my dividends...I know a lot of Fools will sing the blues over that...but REITS do have a place in a growing portfolio with the time frame you have before you. Duke-Weeks Reality has a several prime areas of real-estate properties and are poised to do quite nicely over the next several decades.

The drug sector will do nicely as baby boomers age. A dark horse like Abbott Labs could be just the ticket for you.

Food stocks are rather iffy. One company that has recently overhauled its divisions in an attempt to become a hungry lean mean fighting machine is ConAgra. Unfortunately, high energy costs will eat most food/drink bottom lines alive.

I hope this has helped. Actually, I don't think you can make a wrong decision if you stick with good companies possessing a strong track record over the years. You do, after all, have time on your side.
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dittos, sir.
See my post on drip companies, "info for drug co. drippers."
purtygud
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