Is Diversification for Dummies?
Do some digging, and you’ll find mixed opinions about diversification, especially among the wealthy.
Billionaire investor Mark Cuban said diversification is “for idiots.”¹ Warren Buffett claimed diversification is really just a “protection against ignorance” for novice investors.² Dozens of articles across the web reach the same conclusion—diversification can be an unnecessary precaution.
There IS a kernel of truth in their opinion… If you’re in that special class of billionaire investors.
Both Mark Cuban and Warren Buffett made fortunes by investing. And every investment they make is based on careful research, expert advice, and decades of experience. They have little need for diversification because their moves are calculated. To them, diversification would be like putting training wheels on a motorcycle—an unnecessary precaution for a fast and powerful machine.
But what if you’re still in first gear on the road to wealth?
Diversification can serve as a useful safeguard—your personal financial training wheels. Diversifying investments across multiple assets with varying degrees of risk can help soften the impact of losses within your portfolio. In other words, putting your eggs in more than one basket can help compensate for lack of expertise.
Are you leveraging the strategy of diversification? How diversified is your portfolio?