Before asking yourself whether it’s worth diversifying an investment, you should first ask yourself whether you consider yourself an expert investor with enough financial education to decide how you are going to go about investing.
That said, you should know that you’ll come across two very different pieces of advice when it comes to investing. Some people think diversification is advisable and others think it isn’t. Each piece of advice is tied to a person who belongs to a particular level of investor. If you haven’t read our article on the seven levels of investors, I recommend you do. It will help you see where you stand.
In my view, the decision to diversify an investment comes down to just two mindsets:
- Undiversified investment: This is the investment made by someone who aims to get rich from investing. They may or may not know how the stock market game works, but their idea is very clear: they want to make big profits from their investment.
- Diversified investment: This is the investment made by someone with only one thing in mind: they don’t want to lose the money they’ve invested. It is usually made by people who are just starting out, or by investors who followed that same advice a long time ago and have always put it into practice.
Clearly, putting everything into a single investment package can cause you bigger losses, but it can also bring high profits. Whoever goes in diversifying goes in afraid of losing, so they may actually end up making their worst fears come true.
Just as in business, when it comes to investing, rather than an advisor, you need a mentor: someone who has already made a fortune from investing. Many people who enter the world of investing let themselves be guided by people who have never made a return on their own investments.
In short, before investing in the market, first invest in some financial education and in learning the investment game, so you can draw your own conclusions about whether it’s worth diversifying an investment.
I’ll answer the question through two professionals:
- A broker would tell you: Diversify your investments, so you’ll have a better chance of getting it right (what they mean is that you’re less likely to lose everything).
- A true investor or capitalist would tell you: You need to spot and research the opportunities the market offers at any given moment, and once you’ve spotted them and are sure about them, invest in that product. Investing is not a game of chance.
Even so, in the following article we gave some tips on the advantages and disadvantages of diversifying and explained how to diversify correctly, since the word diversification is often misused: How to diversify your investment correctly
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