Whether you handle your portfolio or hire a professional to manage it, there is no way you have not heard of the importance of diversifying your investments. The reality is, however, most investors fall prey to one of three major diversification mistakes; which of the three is your issue?
First and foremost, let’s briefly review what diversification is:
Investopedia defines Diversification as: ‘A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.’
At first glance this makes sense and doesn’t appear to be complex, right? We find that investors typically appear to be in one of three different camps when it comes to diversification:
- Under Diversification
- Improper Diversification
- Over Diversification
Let’s take a moment to look at each and how investors can get their portfolios back on track. Continue reading