MANAGEMENT is efficiency in climbing the ladder of success; LEADERSHIP determines whether the ladder is leaning against the right wall - Stephen Covey

Wednesday, September 21, 2005

The Dangers of Over-Diversification

We’ve all heard the financial experts expound on the benefits of diversification and that a personal stock potfolio must be diversified to some degree; none of us wishes to “put all our eggs in one basket” and expose ourselves to the inherent risk of holding only one stock. But can you go too far in spreading your bet? It's important to remember that no matter how diversified your portfolio is, your risk can never be shrunk down to zero!
Many investors have the misguided view that risk is proportionately reduced with each additional stock in a portfolio, when in fact this couldn’t be farther from the truth. There is strong evidence that you can only reduce your risk to a certain point at which there is no further benefit from diversification. So, to conclude...its back to basics....dont put all ur eggs in one basket! - Does anyone dare to challenge this view????!!


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