How much diversification is needed?
today I was speaking with a wise friend of mine, who is a pretty good investor, and he manages to live out only from his investments. Mid-30's, without a business school behind, only with engineering. He has been a focused saver and investor for 15 years, and now he is working only as an investor.
He is spread out in different fields, like real-estate, stocks, start-ups and cryptos. I've called him to ask about a crypto if he knows it, and we ended up discussing diversification.
He told me not to diversify too much from the start, and focus on one asset till it is big enough, so that it gives a periodical pay and can be grown from the earnings that it is generating, basically compounding. Investing needs to be done according to a plan and needs to be logical and emotionless. Don't get attached to an asset that is losing money in the long run.
I was thinking about it, and he is right, as diversification can be a killer if it is to thin and into many assets. I remember that 12 years ago, I was putting €25 a month into a stocks account. The idea seemed fine, but the way I did was stupid. I was losing money on the fees, more than the dividends for years. It would have been better to put €300 at the start of the year in, and wait. It would have been a lot more productive.
Focusing on a target on a single asset has the higher chance to turn out great. For example, I'm focusing now on the CUB development and want to grow the asset to a certain threshold, so that I can pay my monthly needs out of it in the future. This can be done only by investing and reinvesting. With the kingdoms it is going to be easier, as it is optimized, and I only need to add CUBs to the pool.
The same applies for almost everything in life, focus on one thing, thoroughly and magic will happen. Sometimes I forget about it, doing more things at the time without focusing on one thing, and the magic disappears. My friend was able to do 3 investment classes at a time, but this only after 10 years experience as he learned how to scale most of them.
Do you focus on one thing or do you like to multitask/multiinvest? Which one works better for you?
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