investing guide

Over-Diversified

Are you over-diversified?

So we all hear that you need to keep your portfolio well diversified. However, studies have shown that statistically once you are invested in 20 diverse stocks across different sectors there is no real benefit in investing in more than 20 stocks. Once you hit 20 stocks the odds simply remain the same no matter how many more stocks you add to your portfolio.

Warren Buffett has said that over-diversification is done mostly by investors who do not know what they are doing to begin with.

When you start to really understand how the markets work you will not want your money in an over-diversified portfolio, because you will be needlessly retaining stocks that simply are not performing well. So why not figure out how to eliminate the bad stocks to begin with to increase your portfolio's earnings.