In investing, as in anything else, there are mistakes to be made. And those mistakes can be both painful and expensive. Though we must take care not to be crippled by the fear of making the wrong move, it is still important to be mindful of the potential pitfalls in our investing journey.
Over the following weeks, we will be going through each of Nick Murray’s eight common investing mistakes. The first is over diversification.
Though making sure our investments are spread out over multiple funds, countries, and industries is important, there is such a thing as spreading out too much. If we put our money into a lot of different things, each one only gets a small piece.
It is much harder to get good growth on a small investment than a larger investment. For example, a 5% return on $1,000 is only $50 whereas a 5% return on $10,000 is $500. And, each fund will have charges and fees, so having more funds than we need multiplies how much we pay to have them.
One way to avoid this is to have all of your different investments in one place. It is easier to view all of your investments if they are together instead of across multiple accounts at multiple financial institutions.
It is possible to be properly diversified without being spread too thin. We don’t want to place all our eggs in one basket, but we still want to get our piece of the pie! We don’t want to only end up with crumbs from 20 different pies and no significant slices to speak of.
As Nick Murray says, “the overdiversified investor, in the act of owning everything, ends up owning nothing.”
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