Portfolio Management

Is diversification important?

For many investors out there, most know that the importance of diversification.

But how much diversification do you really need? What are the number of stocks you need to own in your portfolio?

Research, experts and gurus have proven that it is important to diversify adequately but not excessively.
Although personally I would recommend around 30-50 in a portfolio, but for those who are CFA (Chartered Financial Analyst) holders, you guys definitely would recommend not more than 30.

So which are the exact numbers?

Well, if you really understand about those companies that you invested in (all of them) around your finger tips, then you can diversify around 8-10 of them. Though the real guru said that 6 are enough to make you super rich.

Last but not least, just remember that you shouldn't be investing more than 20% of your portfolio in any stock. Just in case of human error (ultimately everyone will make mistake no matters how intelligent they really are).

As the saying goes; rule number one "Don't lose money" and rule number two "Don't forget rule number one."