MYTH-18. ONE CAN FOCUS ON A FEW STOCKS TO BUILD WEALTH

MYTH-18. ONE CAN FOCUS ON A FEW STOCKS TO BUILD WEALTH

·         No, such a strategy can rarely build long-term wealth.

·         It is easy to get swayed by strong returns from a select few stocks over a short period of time.

·         But sustaining such strong returns over a long period of time is uncommon.

·         Such a strategy over the long run can expose you to higher risks, called concentration risks.

·         Concentration risk is the probability of incurring losses by limiting your portfolio to a select few stocks.

·         If a thematic fund allows the fund manager to choose from very few stocks, it may face concentration risks.

·         This is also the reason why diversification is the best strategy to build wealth over the long term.