4 Indications Your Investments Are Over-Diversified

Diversification is an important investing principle that helps you spread risk among many different investments instead of just one. 

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1. Lack of Portfolio Focus

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If your portfolio contains many different assets, but you struggle to articulate a concise investment strategy or goal, you've likely gone too far in diversifying. For instance, many investors are focused on the tech sector. Or healthcare. Or energy stocks.  

2. Diminishing Returns

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When your portfolio becomes over-diversified, the impact of individual asset performance on your overall returns declines. This means that even if some investments perform exceptionally well, their positive impact on your overall portfolio might be minimal due to the sheer number of assets involved. 

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3. Difficulty in Monitoring and Managing

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If you spend excessive time trying to keep track of various investments, rebalancing becomes a daunting task. Monitoring the news, economic indicators and market trends for many assets can lead to decision fatigue and increase the likelihood of making impulsive investment choices.

4. High Transaction Costs and Complexity

Constantly rebalancing a complex portfolio incurs additional fees and taxes, eroding potential returns. Moreover, the complexity of managing many investments can result in oversight or delayed reactions to market shifts.