Try the Free Lunch
The best bargain in investing is diversification: its free.
Most people nod agreeably when they hear that but then do the opposite. They can't resist buying a 'hot' initial public offering of a promising company that could lead to riches. Or they look up which mutual fund manager has a hot hand and climb aboard.
Unfortunately most IPOs or other well considered stocks may not tum out as well as we hope. Managers with the hot hand often find that it cools off occasionally with dreadful results.
Three years ago many experts considered AIG among the safest insurance companies in the world. In September. 2008. stockholders found out otherwise.
Meanwhile. investors who placed their faith in widely diversified mutual funds fared much better. While diversified investors got hurt in the crisis. their funds probably recovered. Those who relied on a handful of stocks were at much greater risk of never recovering.
It comes down to the old story of the tortoise and the hare. While the hare might shoot ahead during the race. the tortoise is a much more reliable finisher. And if you want to take good care of your money. isn't that your aim?