Is it true that a single fund should not invest more than 10% of the total investment? Many people disagree with this view and wonder whether such a view is correct. In fact, in the process of investing, everyone will have their own principles. If you are following principles that lead to stable and satisfactory returns, then there is no need to change them.
It is not conducive to management
If the total number of investment funds is at least 10, or even more, based on the statement that a single fund should not invest more than 10% of the total investment, then a number of problems are faced.
1. Choosing a fund is difficult
The first step in investing in a fund is to choose a quality fund. It is easy to choose 1 quality fund, it is not difficult to choose 3 or 5, but it is not so easy to choose more than 10 quality funds.
2. The difficulty of adjustment
Even after selecting 10 quality funds, we will adjust the position of the fund as the market changes or the management of the fund group changes its decision. Analysing and adjusting more than 10 funds is also not an easy task.
When the number of funds held is too large, it can be difficult to manage and requires more time and effort.
Risk and return
This approach can reduce investment risk to a certain extent, after all, the funds are spread over a number of funds.
1. Risk of duplication of stock selection
In order to be able to make a successful return, most funds invest in many good stocks, so it is likely that these funds will have a large position in the same stocks during the course of the fund's investment, so this does not serve to diversify risk at this time.
2. No significant gains can be made
If you choose a fund in more than one sector, this does alleviate the duplication of stock selection, but it should be noted that there is a lot of rotation in the stock market sectors, and there will be one fund that has a good gain every day and one that has a big drop, which in combination may not lose money, but the return is not high.From the perspective of risk and return, choosing more funds does not necessarily reduce risk, and may make the return on investment low and the return outweigh the loss.
3. While diversification is possible, too much diversification can result in benefits not being realised. It is recommended that the number of funds held by an individual be 3-5, so that they can be relatively easy to select and manage without having to worry about the high risk associated with massive duplication of stock selection. Each person's situation is different, so the principles of investment will be different. If "investing no more than 10% of your total investment in a single fund" can make your investment more comfortable and your returns satisfactory, then there is no need to reduce the number of holdings.
