STOCK DIVERSIFICATION FOR BEGINNERS

Over the past several decades, people on Wall Street have preached the virtues of stock diversification, drilling it into the minds of every investor within earshot. Even stock market beginners or dummies have heard about diversification. Everyone from the CEO to the delivery boy knows that you shouldn't keep all your eggs in one basket - but there's much more to it than that. You shouldn't go on financial tips alone...you need to diversify and study your options.

The concept of "don't put all your eggs in one basket" is a wise one for those who are unable or unwilling to evaluate the attractiveness of investment opportunities. But as it happens, excessive diversification presents a serious hurdle to wealth building.

There undoubtedly is less risk in holding a concentrated portfolio of well researched investments than holding so many stocks your returns are bound to be nothing more than average. The ideal portfolio size, depending on your net wealth, may be between 5 and 20 stocks. It is better to have a smaller group of well researched and understood stocks than it is to have a sizable laundry list of all the popular companies. For it is much easier to find 5 exceptional opportunities than 25.