The purpose of diversification is to make you a fool. Do you really want to put your money in these funds and let them invest in products you don’t understand? Do you know when to adjust your asset allocation? Do you adjust your asset allocation based on changes in the US dollar exchange rate? Or changes in domestic inflation? Or changes in European inflation? Or Chinese inflation? Or changes in tax regulations in Italy and Greece? Changes in interest rates? Trade balances?
It all comes down to this: Do you want to invest in what you understand, or do you want to invest in what Wall Street wants you to believe?
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Postscript:
For some people, the views in this article may be too extreme. But I think the author has good intentions. It is true that many investors (small stockholders) are easily deceived and lack insight, and they are easily deceived by the so-called expert advice. Faced with various propagandas in the financial media, they believe them after hearing them too many times, and diversification is an example.
I have personally met someone who holds more than 50 stocks in his trading account. This is not diversification, but diversification of attention. I think this is mostly because the investor himself does not know which stock is good, so he simply buys all of them in order to “diversify the risk.” This is also the reason why many investment consultants recommend diversification, because they have not conducted in-depth research and do not know which stock/fund is good. Anyway, if there is no light in the east, there will always be a light in the west. If you recommend more, there will always be one that will rise.
Instead, it is better to buy an ETF that tracks the market index . This is the real diversification, because buying an ETF is equivalent to buying all the constituent stocks of the index. You don’t need to study the corporate performance of individual stocks, nor do you have to worry about someone falsifying accounts. It doesn’t matter whether you understand individual stocks or not. You just need to understand the long-term direction of the economy and choose one or two ETFs for long-term investment , so that you can beat Wall Street.
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