Diversification bias: your portfolio may be riskier than you think

Intelligent Investor

There's more to diversification than adding more stocks, and these biases are working against you. Here’s the scariest statistic I’ve read in a while: In a 2015 survey of Australia's financial literacy, people were asked about 'diversification' as an investing principle. Some 60% of the 4,100 respondents ticked 'I haven't heard of this' or 'I have heard of this but don't really understand it'. Yikes. If you’re reading this, you are probably in the minority who do understand the benefits of a diversified portfolio. Spreading your bets across several stocks reduces volatility and your exposure to company-specific risks. But, even for experienced investors, a few mental biases can creep up and your nest egg may suffer as a result. First among these is diversification bias, which is essentially our fear of focus. We value having options and put effort into keeping those options open – even when it is costly or pointless. Read full article here: (VIEW LINK)


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