Most of us are well aware of the benefits of diversifying our investments. If you concentrate too big a proportion of your hard earned funds in a single stock, there’s a real risk that it blows up and you lose it all.
Of course, the chances of this happening are greater for some investments than others, but you’re setting yourself up for some very binary outcomes – joy and excitement when it all goes great, or major stress and devastation when the unexpected happens, including the potential to experience one of the saddest investing tragedies.
It’s hard to find anyone who would dispute the benefits of diversification, even if you’re giving up a chance of achieving a massive payoff. The risk is almost always not worth it.
But many of us don’t tend to live our lives using the same rationale. [Read more…]