India’s leading equity advisory company, Research and Ranking, offers a unique Wealth Creation Strategy that helps in diversification of stock portfolio.
Success in investing is all about balancing risk and reward, which is only possible through careful portfolio diversification. Too much diversification can reduce the gains while a concentrated portfolio of 5-6 stocks will multiply the risks. On the other hand, a balanced approach can help investors systematically create wealth.
The Indispensable Role of Diversification
Portfolio diversification is a wise strategy to ensure proper portfolio and risk management by investing in companies across diverse sectors and industries. Investing in stocks from diverse sectors or industries with low correlation to each other can help limit the risks that a concentrated portfolio with minimal stocks would be vulnerable to.
As all stocks will not gain or lose at the same time or at the same rate, it ensures consistent portfolio performance in the long run. However, when the concept of diversification is stretched too far, it fails to serve its very purpose can even lower the overall portfolio returns.
The Perils of Over Diversification
The primary purpose of portfolio diversification is to reduce the risk. However, an investor should also understand that irrespective of how diversified the stock portfolio is, the risk can never be eliminated. Hence an over-crowded portfolio of many stocks (30-40) will not completely eliminate the risk altogether.
Every time a new stock is added to such a portfolio, it lowers the portfolio’s risk but lowers the expected return also. Having too many stocks in the portfolio in the name of diversification, simply means that the portfolio lacks high conviction and quality stocks.
But this does not imply that one should hold a concentrated stock portfolio of 5-6 stocks. The level of risk is very high and can have disastrous consequences if the investment thesis is proven incorrect eventually.
Yes, some investors use this high conviction, high risk and high reward approach, but this approach works best only if you have:
- In-depth knowledge of stock investing, financial ratios and metrics used for valuation
- Adequate time (6-10 hours a week) for analysing businesses
So, what is the best approach when it comes to creating a winning stock portfolio?
The best approach is investing in a portfolio of 20-25 high conviction stocks. Practically, it has been found that a portfolio of 20-25 stocks offers optimum diversification. Beyond this, it tends to become over-diversified.
India’s leading equity advisory company, Research and Ranking, offers a unique solution known as the 5 in 5 Wealth Creation Strategy which is designed to help investors to invest in a tailor-made, adequately diversified portfolio of 20-25 stocks with the potential to potential to deliver 4-5 times returns in next 5-6 years.
Benefits for investors under the 5 in 5 Wealth Creation Strategy:
- An adequately diversified and customised portfolio of 20-25 multi-bagger stocks having the potential to generate 4-5x returns in 5-6 years.
- Total handholding on the recommended portfolio – detailed research reports, upside potential of stocks, percentage of allocation, buying range, timely updates, stock alerts, exit range and many more.
- Regular monitoring and rebalancing strategy, when necessary.
- Get regular information on best investing practices and key market developments.
- Smart dashboard and handy mobile app which allows investors to track their portfolio anytime anywhere.
When you invest in equity, the idea is to do well and generate higher than average returns. Research & Ranking’s exceptional strategy has helped over 15000 investors fulfil their financial goals by generating 480% returns over six years.
To know more about India’s leading technology-enabled and SEBI registered equity advisory, Research and Ranking visit https://researchandranking.com.