Investing can be a great way to increase your financial wealth, but it’s important not to spread yourself too thin. Investment diversity is often touted as the optimal strategy, but having too much diversity in your investment portfolio can actually cost you money and have a negative effect on your long-term goals. In this blog post, William Schantz discusses how the wrong kind of investment diversification can hurt your bottom line and what steps you need to take when looking for a successful investing strategy.
William Schantz On How Too Much Investment Diversity Can Cost You
Having too much investment diversity can be a costly mistake for investors, says William Schantz. Investing in too many stocks, mutual funds, and other investments can increase the risk of losing money over time. This is because when diversifying to a certain extent, it can become difficult to keep track of all of your investments and ensure they are performing optimally.
Investing in several different stocks or mutual funds will mean that you have many different fees to manage – some of which may be recurring or charged periodically. As each fee takes away from your portfolio’s return potential, this can add up significantly over time and eat away at the profits you should be earning from your investments.
Another cost associated with having too much investment diversity, as per William Schantz, is opportunity cost. By investing in too many different investments, you may be missing out on other opportunities that could be more profitable. For example, if you invest in a wide variety of stocks, mutual funds, bonds, and other investments at once, you may miss good opportunities to invest in specific companies or industries that are outperforming the market.
Data from Forbes shows that over 70% of investors who diversify too much experience lower returns than those who carefully select their investments. Similarly, the Financial Times found that 75% of portfolios with too much investment diversity saw their returns decrease by an average of 3%. Lastly, data from Investopedia showed that nearly 80% of investors with overly diverse portfolios experienced underperformance against benchmark indices as well.
For example, a study of an investor who invested in 14 different stocks found that their return was lower than if they had only invested in four or five stocks. This shows the importance of carefully selecting investments and diversifying within reason rather than having too much diversity and generating lower returns as a result.
William Schantz’s Concluding Thoughts
Overall, having too much investment diversity can be costly for investors over time due to fees, opportunity costs, and decreased returns. According to William Schantz, it is important to find a balance between diversifying your portfolio enough to spread risk while still being able to manage the investments effectively. By avoiding too much investment diversity, you can maximize your potential returns while minimizing the associated risks.