Is it better to put all your eggs into one basket and watch that basket, or put your eggs into many baskets?

Question

Is the effectiveness of diversification for reducing risk and creating profit contingent upon the amount invested? Is it better to take on more risk with smaller amounts and have less diversification or is diversification always necessary?

Answer 1

Diversification is always better but the question becomes how much.

Answer 2

Good question. I feel it all depends on how much money you have to invest. People with 1-5k should only be on 1 or 2 stocks. So in that situation, it's not only ok to put all your eggs in one basket, but it is also the best strategy.

One the other hand, if you are investing 100k and up, diversification is the ONLY way to go since you NEED to spread out risk in order to protect your investment and ensure growth.

Diversification vs. Diworsification??

Just make money any way you can!!

Answer 3

It depends partly on how much money you got to invest. If it's a small amount (such as a few months living expenses), then you're better off putting it into one low-risk investment.

Diversification will not "create" profit. If done correctly, it can help you avoid certain types of risk.

Practical investments have some "friction": the labor of keeping track of separate investments, minimum amounts, fees and commissions. I suggest that if the friction is more than 2% of the amount invested, then you have too small an amount in that investment, or the investment is just too expensive. Personally, I try to keep it below 1%, including my time at just $20/ hour.

Also, having more than 30 investments (stocks, mutual funds, etc.) is for professionals.

Answer 4

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Answer 5

In my opinion you should diversify enough to reduce risk, but not much so you aren't focused.


keep in mind that no mather how much you diversify, you really aren't diversifying that much, as most stocks follow in one way or another the main trends of the market.

Answer 6

look at enron. everyone was putting allllll their money into that 1 company an doing things behind everyone. if the company goes down (like it did) every one goes down with them. so u loose allll ur money. and "it just happens that the ceo of enron had a heart attack before he went to jail",,,, mutual funds are better. be diverse. unless....you know of stocks that will rise in vaule at 40%....then youll get rich....but if u dont get rich and it goes down u go poor.

Answer 7

Many baskets because if you have only one and it fails you have no eggs.