Many great investors have commonly repeated this common saying. “Diversification is the only free lunch (in the world)”. Despite many investors preaching this truism and many of them practicing it by buying index ETFs or owning 30 to 40 stock portfolios, there is still a case against diversification. Warren Buffett, otherwise known as the Oracle of Omaha, has famously mentioned that “diversification is a protection against ignorance”. Wait, that is contradictory. This article will seek to explain the cases for and against diversification. Lastly, I will end off with how I practice diversification in my own portfolio.
Pros
Don’t put all your eggs in one basket
This is a common saying and I am sure if you have been in the finance community long enough, you would have heard this. We should not concentrate all our assets in one place because we risk losing it all if that particular sector falls.
Diversification helps you prevent that potential risk....