Sizing It Right

When it comes to investing, there’s a well-known adage: “Don’t put all your eggs in one basket.” It’s the golden rule of investing, spread your money around, dodge the big risks and sleep better at night.

Diversification is like the safety net of the financial world, softening the blow of those wild market swings that can turn your stomach upside down.

However, while diversification is a foundational concept in investing, it’s important to note that too much of a good thing can result in adverse outcomes. As Warren Buffet wisely said, “Diversification is protection against ignorance.” Diversification works as a hedge in the portfolio, but excessive layers of hedging can lead to overly spreading investments, resulting in sub-par portfolio outcomes.