Holding Company Depository Receipts which are also known as HOLDR, are a device developed by a certain brokerage house that allows investors to buy and sell not one stock at a time but a basket of diversified stocks in one area or group, such as utilities or transportation stocks. Holding Company Depository Receipts are traded daily on the stock exchange and can be bought and sold just like individual stocks. Other areas they cover might be biotech, high tech, emerging markets, Europe, or any other grouping. This allows the stockholder to buy and hold more than one stock with a single transaction and commission charge and be diversified in a field.
Say you think emerging markets is a great place to invest. This is places like China or India that have new, emergent economies that are growing fast. You could try to buy up lots of stocks in each market to ensure you are diversified and hold a wide range of stocks, from large established companies to start-ups barely past their initial offering and pay a commission charge on each buy or sell. Or you could simply buy into one Holding Company Depository Receipts that specializes in emerging markets. This basket of stocks means you are in the area of the market you wish to be, but not in only one company that could fail and you only pay one commission fee when you buy it and one when you sell it.
If you won the lottery and suddenly had a million dollars to invest, how would you invest it? Would you buy one company with high risk but high return potential? What if that company goes out of business? Then you've lost your million dollars. No, you need to spread your investments around into solid blue chip companies, bonds, emerging markets, and high-risk high potential return companies. This diversification means if you make one mistake, it doesn't wipe out your million dollars. It's the same for the small investor, even if you are only investing $10,000 or your retirement savings. Diversification is the key. The cliché is don't put all your eggs in one basket. Even if that basket is a very safe but low-return investment. The more money you invest the more you need to diversify your investments. Spread the wealth around to different stocks, mutual fund types, or Holding Company Depository Receipts.
When investing in stocks or Holding Company Depository Receipts the worst thing you can do is panic at a market drop. As an investor you need to be in it for the long haul. Day trading died for a reason: it doesn't work. And if you hold a stock longer, the capital gains tax is lower. If you are investing for your retirement, diversification is tantamount but also investing for the long term. The market will rise and fall but it does go up. When the market is down you can buy bargain, when the market is hot, that is the time to sell and look for more stable investments such as bonds. Over the past twenty years the market has been very volatile along with our economy. But people still made money by investing for the long haul, diversification, and selling and buying at the right time. And Holding Company Depository Receipts can be part of that because they allow you to buy into an undervalued segment of the market, be automatically diversified thus minimizing your risk, and then sell it all at a profit with only one transaction on both ends.
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