Finance Fridays: Don’t Spread Yourself Too Thin
Diversification is a must, but like all good things, it can get out of control.

Having a diverse set of holdings is very good for your portfolio, because if there is a problem in one sector, then hopefully other sectors will not be as badly affected. Unfortunately, some people take this to extremes and end up with a portfolio of over 50 different stocks.
The problem with this is that you probably don’t have enough time available to be an expert on how these 50+ companies are doing. Thus conditions at one of these companies could change while you’re not paying attention. This would normally require you to alter your position. Next thing you know, the position has moved against you.
To prevent this, limit yourself to investing in companies where you have a real interest in how the company is doing. Don’t add positions in companies if you don’t have time to follow the companies.
If you have a set of stocks that are part of the same sector, consider replacing those with a sector-based ETF. For example, if you find yourself holding several major financial companies, it may be easier to just buy the XLF instead.
Also, examine your position sizes. If some of your positions are extra small, they will never contribute much to your portfolio. It may not be worth your time to continue to follow the company if you’re not going to invest much money in it.
Definitely, maintain diversification. It’s crucial to reducing your risk. Just be smart and don’t add positions you don’t have time to monitor.
