{"id":1204,"date":"2019-11-18T12:20:00","date_gmt":"2019-11-18T06:50:00","guid":{"rendered":"http:\/\/blog.budwisefunds.com\/?p=1204"},"modified":"2020-12-07T18:05:19","modified_gmt":"2020-12-07T18:05:19","slug":"look-for-diversification-and-not-diworsefication","status":"publish","type":"post","link":"https:\/\/budwisefunds.com\/blog\/look-for-diversification-and-not-diworsefication\/","title":{"rendered":"Diversification or Diworsefication : Look for Diversification and not Diworsefication"},"content":{"rendered":"\r\n<p><span style=\"font-size: 20px;\">Why we should look for Diversification, not for Diworsefication? Here we are providing all informative stuff<\/span>:\u00a0<\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Earning returns on your investments is not as easy as it seems. You cannot straight away invest in any of the available asset class which yields high returns.<\/span><\/p>\r\n<p><span style=\"font-size: 24px;\"><strong>Further Reading: <a href=\"https:\/\/www.mutualfundssahihai.com\/en\/diversify-risk-potential-rewards\" target=\"_blank\" rel=\"noopener noreferrer\">Mutual Fund Sahi Hai<\/a><\/strong><\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\"> Investing requires proper due diligence on the part of the investor and will only generate fruitful result if proper asset allocation has been made which are in sync with the individual\u2019s risk appetite and liquidity needs.<\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\"> While constructing a portfolio one must maintain a proper balance between risk and reward. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Risk can be minimized by diversifying funds across different asset classes or within the same asset class. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">However, most of the investors over diversify or diversify their investments and hence end up committing mistakes.<\/span><\/p>\r\n<p><script async=\"\" src=\"https:\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script> <ins class=\"adsbygoogle\" style=\"display: block; text-align: center;\" data-ad-layout=\"in-article\" data-ad-format=\"fluid\" data-ad-client=\"ca-pub-6495755798120621\" data-ad-slot=\"6499025866\"><\/ins> <script>\r\n     (adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script><\/p>\r\n<h2 style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">The two classic examples of diversification have been discussed below: &#8211;<\/span><\/h2>\r\n<p><span style=\"font-size: 20px; color: #000000;\"><strong>1)\u00a0 Across different asset classes<\/strong><\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">There are usually four asset classes namely equity, debt, gold and real estate. As we have already discussed that asset allocation is the key to success while investing. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">An investor should not choose an asset class based on a single factor. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">There are many other factors which an investor should look for before investing like liquidity, underlying risk and returns.<\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\"> Fulfilment of only one factor should not convince an investor to invest in that particular asset class. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">For example, investment in real estate scores very low in liquidity as you cannot sell your property in a day or two. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Hence, one should not invest in real estate just for the sake of earning returns, unless and until you have maintained proper liquidity for yourself.<\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Another important thing one should look at is whether you would be able to stomach the underlying risk of that particular asset class or not.<\/span><\/p>\r\n<p><span style=\"font-size: 24px;\"><strong>Also Read: <a href=\"https:\/\/budwisefunds.com\/blog\/what-is-credit-score-budwisefunds-mutual-fund\/\" rel=\"bookmark\">What is credit score ?<\/a><\/strong><\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\"> For example, equity mutual funds can generate superior returns over a period of time however in the short term they might be risky. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">So, a person in the retirement period should avoid investing heavily into equity mutual funds because it may pose the capital of the retired person at risk. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Hence, an investor should avoid taking unnecessary risk and should only follow a suitable strategy.\u00a0<\/span><\/p>\r\n<p><span style=\"font-size: 20px; color: #000000;\"><strong>2) Within the same asset class<\/strong><\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Even after choosing the percentage to be allocated towards a particular asset class let\u2019s say towards equity, investors often end up over-diversifying their assets.<\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\"> Let me explain this with the help of an example, if you look at the portfolio of a particular mutual fund scheme then you will find that each and every mutual fund scheme holds at least\u00a0 15-20 securities in its portfolio. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">So now if an investor is investing in large-cap schemes and holds 3 large-cap mutual funds in his\/her portfolio then the investor is unknowingly just over-diversifying as these three mutual funds might be holding same stocks in their portfolios since these all belong to the same category (large-cap funds). <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Hence, holding many funds in the same category is not a diversification but just diversification.<\/span><\/p>\r\n<p><script async=\"\" src=\"https:\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script> <ins class=\"adsbygoogle\" style=\"display: block; text-align: center;\" data-ad-layout=\"in-article\" data-ad-format=\"fluid\" data-ad-client=\"ca-pub-6495755798120621\" data-ad-slot=\"6499025866\"><\/ins> <script>\r\n     (adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\"><strong>Conclusion<\/strong><\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Though the right asset allocation is the only thing that matters but in the desire of achieving the right asset allocation one should not forget considering <strong>other<\/strong> important factors. <\/span><\/p>\r\n<p style=\"text-align: justify;\"><span style=\"font-size: 20px; color: #000000;\">Remember the right assets held in the right amount at the right time will lead an investor towards the right path. And helps in accomplishing all the aspirations of the investor effectively.<\/span><\/p>\r\n<p><span style=\"font-size: 24px;\"><strong>Further Reading: <a href=\"https:\/\/www.investopedia.com\/investing\/importance-diversification\/\" target=\"_blank\" rel=\"noopener noreferrer\">Investopedia<\/a><\/strong><\/span><\/p>\r\n<p><img loading=\"lazy\" id=\"lfdand\" class=\"size-medium wp-image-562 aligncenter\" src=\"https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-300x88.png\" alt=\"\" width=\"300\" height=\"88\" srcset=\"https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-300x88.png 300w, https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-1024x299.png 1024w, https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-768x224.png 768w, https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-1536x449.png 1536w, https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-2048x598.png 2048w, https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-1200x350.png 1200w, https:\/\/budwisefunds.com\/blog\/wp-content\/uploads\/2019\/08\/download-pdf-button-1-1980x578.png 1980w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><\/p>\r\n\r\n\r\n\r\n<p>&nbsp;<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>Why we should look for Diversification, not for Diworsefication? Here we are providing all informative stuff:\u00a0 Earning returns on your investments is not as easy as it seems. You cannot&hellip; <\/p>\n","protected":false},"author":1,"featured_media":2084,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[13],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Diversification or Diworsefication : Look for Diversification &amp; not...<\/title>\n<meta name=\"description\" content=\"Why we should look for Diversification, not for Diworsefication? 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