Which rules in investing, diversify or concentrate?
In the field of investing, taking great risk is part of the package of earning. It’s also the mere reason behind most financial experts’ advice about diversification. In this context, “diversify” means putting your money in various investments like stock market, business, and mutual fund or treasury bills. However, not all are buying the “safe-way-of-earning” feature of diversification as some other experts like Robert Kiyosaki recommend to FOCUS in one investment first before having another one.
In diversification, it somewhat shield you from financial loss in case one of your assets don’t perform well. The thing with it is at least you have other investments, which perhaps get better yields, to rely on. According to Arbor Investment Planner, you should know how to properly and personally diversify your investments or else you’ll experience its disadvantages. Some of the disadvantages that the site mentioned are experiencing low quality portfolio, complications, turning your investment into an index fund, market risk, and below average returns.
On the other hand, Kyosaki’s Focus means “Follow One Course Until Successful.” In an interview with Alex Pirouz, via under30ceo.com, Kyosaki mentioned that focus is one of the usual traits of successful entrepreneurs or let’s say investors.
“Most entrepreneurs fail because they lack the strength of character and the ability to stay on course until successful,” the author of the best-selling book “Rich Dad, Poor Dad” and well-known motivational speaker shared.
Kyosaki’s ideal is related to experts’ advice that it’s better to concentrate in few investments. In fact, some considered that diversification, especially over, is the strategy of amateur investors as they just follow what their brokers’ recommendation and probably don’t know the qualities of their investments. The following are the notable quotes from Warren Buffet, an American business magnate and considered as the most successful investor in the world.
“Wide diversification is only required when investors do not understand what they are doing,” “Diversification may preserve wealth, but concentration builds wealth.”