How owning too much can dilute your gains and distract you from your best ideas.
"Diversification is protection against ignorance. But if you know what you’re doing, it’s unnecessary." — Warren Buffett
When you’re new to investing, it’s easy to think more is better:
More sectors=more protection
But here’s the truth: Owning too many stocks can become a distraction, not a strategy.
Lose track of what you own
Dilute the performance of your best ideas
What Healthy Diversification Looks Like
For most investors, that means:
Or a low-cost index ETF (like S&P 500) if you’re not yet ready to pick stocks
How Over-Diversification Hurts Your Portfolio
1. Diluted returns: Your best performers get weighed down by average or poor performers.
2. Mental overload: Too many positions to track leads to sloppy decision-making.
3. Higher costs: More transactions, more fees, more clutter.
4. Loss of conviction: If you don’t know why you own something, you’ll panic when it drops.
A Good Rule of Thumb
When to Diversify More
Every rule has an exception. If you:
Don’t want to research individual companies
Then broad diversification (through index funds) is perfectly valid. For many investors, it’s the smartest option.
Quote to Remember
"Wide diversification is only required when investors do not understand what they are doing." — Warren Buffett
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This article was written by Itai Levitan at www.forexlive.com. Read More Details
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