All-in or diversified portfolio ?
If you were at the casino sitting in front of the poker table, good cards in your hand, would you risk an all-in or would you moderate your risks ? Let’s see together the pros and cons.
Is all-in a good idea ?
You might be tempted to be fully committed to just one company. A company that in your opinion could make you become a wealthier person. Being all-in into just one company can grant you a big reward, or could cause you a great loss. It is for sure the riskiest and the most aggressive way of investment.
If you decide to follow your guts and invest in just one company, make sure to have key data and to ask yourself the good questions.
If I had a 100k, would I invest blind eye ? What are the company’s fundamentals? What is the company future’s prospect ? Is it a growing sector? Does the company outstands its competitors ?
Buy the company because you trust in it and not because it is under the spotlight or because you are scared to miss out a bargain stock.
It is a lot of questions as if you do this move, it will be a full dive into the ocean with no buoy.
You will feel way more emotional as your portfolio depends on this one unique stock.
To sum up, we can define these pros and cons:
Pros
Big reward in case of success
Less stock to keep an eye on
Your wealth will grow way faster
Cons
Can be a great loss in case of failure
Your portfolio depends on just one stock
High emotions
Can miss other companies
What about diversification ?
Diversifying is the most used technique amongst investors. Investing in several companies will lower your risks and will enable you to invest in several sectors. This way if one of your stock is affected for any reason, your other stocks will be there to back you up.
Moreover, you can diversify by degree of risks and decide if you want to play it safe, aggressive… It will enables you to have a steady growth, to miss less bargains and will reduce your risks.
You will feel less emotional as your portfolio doesn’t depend on one unique stock but several ones.
To sum up, we can define these pros and cons:
Pros
Diversified
Less risks/Moderate Loss
Target more companies
Less emotional
Cons
Your portfolio will be slower to grow.
In both cases, make sure you pick the right company(ies) with great fundamentals, inner and market growth prospect, great management and don’t forget to do your moves by a strategic plan and not by being lead your emotions.