Building Your Portfolio: Diversification, ETFs, and Worry-Free Investing

You've invested your first $100. You're learning how markets work.

Now comes the next question many people ask: What should I actually own? Individual stocks? ETFs? Bonds? How do people decide?

This is often where people feel overwhelmed and pause. Understanding a few core concepts can help make the landscape feel more manageable.

The Fundamental Problem: Too Many Choices

There are 10,000+ stocks in the world.
Thousands of bonds.
Hundreds of ETFs.
Unlimited combinations.

How do people choose?

Rather than researching every option, many educational investing materials focus on a principle designed to reduce complexity: diversification.

Diversification: The Only Free Lunch in Investing

There is a well-known concept in investing often described as “the only free lunch,” referring to diversification.

In simple terms, diversification means spreading exposure across many investments rather than concentrating everything in one place.

Instead of holding a single stock, an investor may hold many stocks across different companies or sectors.

Why? Some stocks go up. Some go down. Some move very little.

By holding a large number of stocks instead of one, gains and losses can offset each other to some extent. This reduces reliance on the performance of any single company.

Diversification is commonly discussed because it can:

• Reduce exposure to individual company risk
• Provide broader market exposure
• Reduce the need for constant monitoring of individual stocks

Diversification does not remove risk, and losses are still possible.

The Easiest Way to Diversify: ETFs

ETF stands for "Exchange Traded Fund."

Despite the name, the concept is straightforward.

What is it: An ETF is a fund that holds a collection of assets, such as stocks or bonds, bundled together.

How it works: Instead of buying individual shares of multiple companies separately, someone can buy a single fund that holds many companies.

That fund is an ETF.

Example: S&P 500 ETFs

Some ETFs are designed to track major market indices.

For example, an S&P 500 ETF holds shares in the companies included in the S&P 500 index.

Buying a small amount of such an ETF represents fractional exposure to hundreds of companies at once.

If one company performs poorly, its impact is spread across the wider group. If one performs strongly, its impact is also diluted.

This illustrates how diversification works in practice.

Why ETFs Are Commonly Used in Investing Education

Researching individual stocks can be time-consuming and complex.

ETFs are often discussed in educational content because they provide broad exposure through a single investment.

In an ETF:

• The composition of the fund is determined by the fund provider
• Exposure is spread across multiple companies or markets
• Investors do not need to select individual stocks

This does not guarantee outcomes, and ETF values can rise or fall.

Costs and Access

nsave does not charge commission on ETF investment orders. Buying or selling ETFs through the investment feature does not incur a commission from nsave. Other fees may apply depending on the third-party provider and market conditions.

Building Your Basic Portfolio

The following is a commonly referenced illustrative framework used in investing education. It is not a recommendation and may not be appropriate for everyone.

• Core holding (70%): Broad market exposure, such as an S&P 500 index
• International (20%): Exposure to developed markets outside the US
• Emerging markets (10%): Exposure to emerging economies

Educational materials often reference this type of structure to demonstrate:

• Exposure across thousands of companies globally
• Access to developed and emerging markets
• Reduced reliance on a single region or sector

Actual allocations vary widely depending on personal circumstances, and outcomes are not guaranteed.

The Compound Effect: Why Starting Now Matters

Time is often discussed as an important factor in investing.

Consider an illustrative example:

Someone invests $100 per month.

• After 10 years: ~$16,000 invested, ~$21,000 total (based on an illustrative 8% annual return)
• After 20 years: ~$33,000 invested, ~$64,000 total
• After 30 years: ~$49,000 invested, ~$174,000 total

These figures are hypothetical and based on historical averages. Actual results can vary significantly, and losses are possible.

This example is often used to explain how compounding works over long periods, rather than to predict future outcomes.

‍

This content is provided for informational and educational purposes only and does not constitute financial advice. Investments involve risk, including the potential loss of capital, and past performance is not indicative of future results. Any examples or data are for illustrative purposes only. Before making any investment decisions, consult a licensed or qualified financial advisor who can assess your individual financial circumstances and objectives.