1. Over-diversification can harm a portfolio due to:
a) Chance of it spreading too thin,
b) Assets which may not perform well, or even perform poorly,
c) Good performance of some of the other assets being neutralised too.
2. Among funds, aim for diversifying by:
a) Fund structure - large, mid, small, multi caps, diversified;
b) Investment style - growth, value, sectoral, thematic;
c) Risk profile - high, medium, low.
3. Don’t invest in more than 6-8 equity funds, because monitoring them will be a challenge, and avoid duplication.
4. Diversification can also be achieved by investing in a mix of equity, debt, gold, money market and real estate funds.
5. In a diversified portfolio, laggards average out gains of outperformers.
6. But in an over-diversified portfolio, out-performance of winners may get severely pulled down by laggards.
7. So excessive diversification can actually "diworsify" a good portfolio!
a) Chance of it spreading too thin,
b) Assets which may not perform well, or even perform poorly,
c) Good performance of some of the other assets being neutralised too.
2. Among funds, aim for diversifying by:
a) Fund structure - large, mid, small, multi caps, diversified;
b) Investment style - growth, value, sectoral, thematic;
c) Risk profile - high, medium, low.
3. Don’t invest in more than 6-8 equity funds, because monitoring them will be a challenge, and avoid duplication.
4. Diversification can also be achieved by investing in a mix of equity, debt, gold, money market and real estate funds.
5. In a diversified portfolio, laggards average out gains of outperformers.
6. But in an over-diversified portfolio, out-performance of winners may get severely pulled down by laggards.
7. So excessive diversification can actually "diworsify" a good portfolio!