How much diversification is needed?
Hi,
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?
Posted Using LeoFinance Beta
It kind of depends. I prefer to multitask/multiinvest for the most part. Of course I tend to focus more on the things I have more faith in but I don't mind growing things more slowly. For example, Cub Finance is now a part of my investment strategy using some of my Leo earnings. I don't plan on changing but its not going to be the only thing I work on.
Posted Using LeoFinance Beta
Your post was promoted by @jfang003
I try to manage risk when I'm thinking about a portfolio. I usually prefer not to spread myself too thin but I always diversify a little to balance the risk.
For my investor profile, I don't wanna expose myself too much to risk but I also don't want to be conservative, so risk is one of my key indexes
Posted Using LeoFinance Beta
I like to like to multitask/multiinvest. But I know it's not the best way so recently I have been trying to consolidate my investments and time. 😊
Posted Using LeoFinance Beta
I believe your friend gave you a great advice. I focus more on crypto these days, and stocks took a backseat. But within cryptosphere I do diversify, both on multiple assets and on multiple platforms to spread the risk. There is a point where diversification is bad, and I'm working to improve this. For example, I'm not getting rid as often of the tokens I don't intend to keep on Hive-Engine. But some are not worth the effort of selling.
Posted Using LeoFinance Beta
I think it makes sense to concentrate your firepower when you're just starting out. Once you begin to grow, then it's smart to slowly expand. So your friend is spot on!
Posted Using LeoFinance Beta
I totally agree with you. I never liked spreading my energy to all sort of projects at a time.
Posted Using LeoFinance Beta