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What young investors need to know about stock market diversification

Megan Rogers, CNBC Producer
Key Points
  • Young investors need to understand the benefits of diversifying their stock market holdings by company size and geography.
  • Owning large-cap, mid-cap and small-cap stocks, as well as domestic and international stocks, are keys to generating long-term investment performance. 
Terranova: Tips for young investors
Terranova: Tips for young investors

During a recent "Ask the Traders" segment on Halftime Report, Virtus Investment Partners chief market strategist and CNBC Contributor Joe Terranova shared his recommendations about how young investors should be allocated. We followed up with Joe after the show for additional insights.

CNBC: How can young investors diversify their portfolios?
Joe Terranova: It's important to diversify not just by asset class but also by geography and strategy. Three levels of diversification.

CNBC: What's the difference between small cap and large cap?
JT: It's based on market cap size, generally small caps are below $2 billion market cap. It's important to also own mid-cap companies in a portfolio which have market caps between $2 billion and $10 billion.

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CNBC: What is an emerging market small cap? International small cap? Why should young investors consider investing in these?
JT: Over the next 5 to 10 years as investor expectations are for muted returns, alpha generation is critical. As an asset class, emerging market and international small-caps are the potential alpha generation opportunity for a portfolio. There are 3,000 domestic small-cap companies. Nearly 6 times that beyond the U.S. for small caps. Great diversification opportunity.

CNBC: Why do you think financial wellness is important?
JT: Financial wellness provides the foundation for individuals to control their greatest asset — time. Own your time and engineer your own outcome with strong financial health.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.