3. Diversification Will Protect Your Portfolio
Although it’s important to diversify your portfolio, as a strategy, it comes with certain caveats.
“Allocating your money across too many stocks doesn’t work, because when the market drops, all stocks drop, but when an individual stock does well, you won’t have enough of it to affect your portfolio,” said Brian Lund, freelance financial journalist for TD Ameritrade’s The Ticker Tape and other publications.
Warren Buffett himself has said: “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
So diversification is ideal for a retirement investor or someone with only moderate investing knowledge, but it’s not a silver bullet. It doesn’t protect you from broad market downturns and it limits your upside from making a good call.
