Successful Investing is not only about picking right stocks but also it requires proper portfolio allocation.
Normally it seems very easy to construct stock portfolio,but proper portfolio allocation is one of the most complex part of successful investing.
During the last few years, I had reviewed portfolio of several investors and noticed that 90% of those portfolios are very poorly constructed. 85% retail investors suffer loss not because of poor stock selection but because of poor portfolio construction. Still proper portfolio construction is one of the most ignored subject in investing. You may also noticed that in spite of few great performers in your portfolio,you are in overall loss. Just few days back I was evaluating a portfolio of one of my clients. There were 4 stocks in his portfolio showing 200%-300% profit but still his portfolio is in overall loss!! This is quite surprising. The only reason of such negative performance is “Over-diversification”
Every financial planner will suggest you to diversify your portfolio. I am also saying the same. The problem is 85% small investors does not know the proper meaning of diversification and how exactly it can be achieved. There is a slight difference between diversification and over-diversification. While diversification can help you to create wealth systematically at the same time over-diversification can easily destruct your hard-earned money.
Every financial planner will suggest you to diversify your stock portfolio but majority of them don’t guide to construct stock portfolio applying proper diversification.