Relatively new to investing, so I think I'm a bit easily led!
I just read an article from Hargreaves Lansdown, which (whilst generally talking about the benefits of diversification) highlighted a negative I have not thought of:
"A very large number of holdings risks simply tracking market performance – some fund managers refer to this as “diworsification”. Each holding doesn’t make up a sufficient proportion of the overall portfolio to have a significant impact on its performance. Not only does this offset any benefits from picking good investments, but in the fund space in particular it suggests that a lower-cost tracker fund could be considered as an alternative.
Holding a very large number of different assets can also expose investors to higher costs – as well as being harder to monitor and manage. While there is usually no cost to buy and sell funds, regularly trading shares will mean dealing commission and stamp duty can eat into overall returns, requiring greater performance to achieve the same results."
However, the people 'giving' me this information (nothing is free, right) do offer funds with management charges. So is this just their way of promoting them?
When I first found MMM I bought some low cost funds, which still make up a third of my portfolio. They have performed well so far.
Then I found Dividend Mantra and got into choosing stocks based on robust financials and dividend yields. I have a very diversified portfolio, because I thought that was the right way to go. I enjoy researching and choosing individual stocks. I am not looking for quick gains by timing correctly, I am just looking for reliable companies who have good long-term prospects. I do not trade often (just buying when I have funds available, in £2000 batches), so my stamp duty etc is minimal.
As I said, I'm easily led.
I suppose if I diversify to the point that I'm just mimicking the market, there is no point. Except that funds charge fees. What says the MMM community? DIY or funds? Is there such a thing as over-diversification?