I understand the weed to be diversified. I'm invested in four different mutual funds. Is this being diversified?
It may not be. Many times individuals invest in three different diversified funds hoping that these funds will provide the variety they need to spread their risk, but upon careful examination, we can see that the major holdings of each of these funds is practically identical. So in the guise of diversifying they have triplicated their portfolios and not really achieved their goal. Diversification means not putting all of your investment eggs in one basket. If the basket falls, you've not only lost your investments, but also the time benefit of compounding.
It may not be. Many times individuals invest in three different diversified funds hoping that these funds will provide the variety they need to spread their risk, but upon careful examination, we can see that the major holdings of each of these funds is practically identical. So in the guise of diversifying they have triplicated their portfolios and not really achieved their goal. Diversification means not putting all of your investment eggs in one basket. If the basket falls, you've not only lost your investments, but also the time benefit of compounding.
No comments:
Post a Comment