Whether you invest in quality index funds, purchase stocks individually or adopt an assorted approach, it is essential to diversify your equity holdings cautiously.
All of us have heard of the adage to never place all eggs in a single basket. The saying is truer when your equity portfolio is that basket. Investing in equities could be very lucrative and rewarding. However, it’s crucial to balance the risk of your equity portfolio across an assortment of various stocks and also across a range of diverse industries.
Reasons behind equity diversification are understandable. If any stock of a diversified portfolio bears an enormous loss, the dent to the larger portfolio is usually small. Should the stock represent a considerable share of your portfolio, the loss might be overwhelming.
Achieving levels of portfolio diversification as recommended by many financial experts is easier said than done, especially for a retail investor. Financial advisors often suggest that a single stock should make up no more than four percent of your overall equity portfolio. This means, the investor needs a spread of no less than 25 stocks. This could be highly expensive for many a retail investor.
All of us have heard of the adage to never place all eggs in a single basket. The saying is truer when your equity portfolio is that basket. Investing in equities could be very lucrative and rewarding. However, it’s crucial to balance the risk of your equity portfolio across an assortment of various stocks and also across a range of diverse industries.
Reasons behind equity diversification are understandable. If any stock of a diversified portfolio bears an enormous loss, the dent to the larger portfolio is usually small. Should the stock represent a considerable share of your portfolio, the loss might be overwhelming.
Achieving levels of portfolio diversification as recommended by many financial experts is easier said than done, especially for a retail investor. Financial advisors often suggest that a single stock should make up no more than four percent of your overall equity portfolio. This means, the investor needs a spread of no less than 25 stocks. This could be highly expensive for many a retail investor.
To Read more: http://gomestic.com/personal-finance/the-importance-of-portfolio-diversification-for-retail-investors/
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