can this good idea to diversify your share portfolio?

can this good idea to diversify your share portfolio?

It is a good idea to diversify your share portfolio as it reduces a number of risks.  But the problem is over-diversification. How many stocks should you have in your portfolio?. This type of diversification also reduces its ability to generate higher returns.

 Excessive diversification reduces your returns, on the other hand, does nothing to reduce your risk.

can this good idea to diversify your share portfolio?


How many stocks should you have in your portfolio? It is much easier to track 15 to 20 high-quality stocks than a large basket of 50 to 100 stocks.  As the saying goes, don't put all your eggs in one basket.  But that doesn't mean you should have all the eggs.  Diversification is good, but it can also be harmful if done too much.

 The average diversified portfolio consists of 20 to 30 stocks.  But there is no one-size-fits-all answer.  This depends on a variety of factors, including your investment horizon, risk tolerance and current portfolio diversification.

 Here are some stock-selection guidelines to follow to ensure a well-diversified portfolio without going overboard, which I follow.

 Rule # 1: Avoid investing in every stock

 Do you want to invest in Tejas networks because 5G is the future, or in Tata Motors electric vehicle


 First of all you have to clearly understand how to invest in the company and the sector.  It is necessary to learn.  Your choice can be either of these two companies or one of the other 4000 actively trading companies.  Instead of following the advice of social media experts, invest in a script that makes sense to you.

 Rule # 2: Save extra savings in your current portfolio

 Also invest your extra savings in your existing portfolio.  Design your portfolio with the future in mind;  For example, if you pay Rs.  1 crore portfolio and your current portfolio is Rs.  10 lakhs then divide everyone equally in the right places.

 You can invest in companies like ICICI Bank, SBI, TCS, Infosys, Asian Paints, Tata Power, Reliance Industries, HUL, Bajaj Finance, D-Mart, HDFC, SBI Life Insurance etc.

 The best thing is to keep putting your extra money into your current stock portfolio, which suits your risk profile and financial objectives.  So, you can continue investing in your existing stocks until your current portfolio is under-diversified or you find attractive stock to invest in.

 Rule # 3: You are not a mutual fund

 It is OK to keep 60-70 stocks for mutual funds.  But you are not a mutual fund.  It is almost impossible for a retail investor to research and keep track of many companies.  It is also fashionable to claim that someone has invested in the news in Tata Motors, IRCTC, IEX, Tata Teleservices, Saregama India and the stocks that live in the news, but the important question to ask is how much has one invested?  If the allotment is less than 1% or 2% of one's total investment, these stocks may have seen a huge increase in the last one and a half years but hardly any profit has been made.

 Rule # 4: The number of shares you have has nothing to do with portfolio.

 Many people believe that the amount you invest is determined by how many shares you buy.  It is important to diversify your portfolio regardless of how much money you have to invest;  If you have Rs.  5 lakhs, it will take a long time to keep 25 to 30 stocks.

 If you have Rs.  Even if you have a large stock portfolio of over 1 million, the number of shares you own should not exceed 20-25;  It is advisable to keep a lot of stock only if you are an active investor or if the investment is your business or career.  If you have a job or business, investing in blue-chip companies with a combination of ETFs and mutual funds is the best option.  Under no circumstances is there a universally accepted solution to a situation, so one should carefully consider all the advantages and disadvantages as well as some of the arguments I have raised in this column.  So that you can avoid making mistakes.

 Rule # 5: Focus on sector floods instead of numbers

 The number of stocks in the portfolio is itself irrelevant.  This is not just about the number of stocks in your portfolio;  It’s also about the quality of the stocks.  The problem is investing in a lot of stocks because you like companies in the same field but it is not worth doing.

 Take the banking industry as an example: you could favor ICICI, Axis, HDFC Bank, Kotak Bank or government owned banks like SBI, Canara or Bank of Baroda.  But can you invest in all of this?  No, even if you can.  You should be selective based on your research and beliefs and invest in more than two or three stocks in a given industry and a few stocks overall.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. www.Tradtips.com suggests its readers to consult with their investment advisers before making any financial decision.)

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