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Are You Truly Diversified? Here're 4 ways to tell.

Updated: Jun 20, 2023



Diversification is one of the most preached investment gospel. In their aim to get outsized returns, some prefer to have a concentrated portfolio of just a few stocks. Others prefer holding 15 to 20 stocks to ensure there're diversified. There is no right or wrong.


The issue with having a concentrated portfolio is the huge downside if you’re wrong. This is why most people are better off having some form of diversification. But what exactly does diversification entail? Is spreading your capital across 20 stocks considered diversification?


When all your stocks are in the technology sector, are you really diversified? While it’s true that you are diversified across many stocks, this means little if they all belong in the same sector.


How To Diversify Your Portfolio Properly?


1) Sector Diversification


Spread your capital across different sectors. That way, if one sector were to crumble, you still have many others holding you up.


The S&P 500 provides a breakdown of the 11 sectors, each having its own ETF.

2) Geographical Diversification


It's common to have home country bias, where you only invest in securities listed on the stock exchange of your homeland. However, it's worth exploring companies in different countries.


3) Asset Class Diversification


It's not enough to just allocate capital across different geographical locations. Another thing to consider is investing across asset classes.


Examples of asset classes include:

  • Stocks

  • Bonds

  • Crypto

  • Real Estate


4) Time Diversification



Time is the best friend of a long-term investor. Invest regularly and consistently. Spread out your investments across a long period of time.


Not only does dollar cost averaging lower the volatility of your portfolio, it also yields greater returns over time.


Conclusion

"Diversification is a protection against ignorance." Most of us think we know what we're doing when in reality we don't. We think we're diversified when really we're not.


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By joining the Buffett Online School community, you and your friends will have access to a wealth of educational resources, expert insights, and a vibrant network of learners. This will help you and your loved ones further enhance your investment skills and emotional stability, thereby improving your portfolio returns.

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Additionally, our BOS community offers exclusive rewards and recognition for each person you invite, making your journey with us even more rewarding. You will take away resources like:


- Gone Fishing With Buffett ebook to understand Buffett’s investing insights (worth $17)

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Remember, you have the choice to cultivate the right investing mindset and unlock your potential to build wealth through intelligent investing. Together, we can create a network of educated investors who make informed decisions and contribute to their financial well-being! Join the BOS Community Today!


In the meantime, feel free to check out some of our blog posts to continue your learning. You can also join our BOS Telegram channel for more investing insights.








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