PT  - JOURNAL ARTICLE
AU  - Vebjørn Jokstad
AU  - Snorre Lindset
AU  - Håvard Tryland
TI  - Exclusion Risk for Long-Term Investors
AID  - 10.3905/jwm.2022.1.172
DP  - 2022 Jun 22
TA  - The Journal of Wealth Management
PG  - jwm.2022.1.172
4099  - https://pm-research.com/content/early/2022/06/21/jwm.2022.1.172.short
4100  - https://pm-research.com/content/early/2022/06/21/jwm.2022.1.172.full
AB  - Portfolios with well-diversified monthly returns can have significant long-term exclusion risk. We use 30 sector portfolios with 90 years of returns. Including 10 to 15 of these sectors in an investment portfolio is sufficient to eliminate almost all idiosyncratic risk in monthly returns. We propose a simple measure for exclusion risk for long-term investors. By compounding the monthly returns over our 90-year sample period, we show that portfolios with 10 to 15 sectors are not well diversified for long-term investors; including more sectors significantly reduces the exclusion risk.