The answer to this question largely depends on what sort of investor you are or see yourself becoming. Traditional advice says you should diversify.

The explanation of ‘diversification’, in Barron’s Dictionary of Finance and Investment Terms, is: ‘spreading of risk by putting assets in several categories of investment - stocks, bonds, money market instruments and precious metals for instance, or several industries, or a mutual fund, with its broad range of stocks in one portfolio.’

In layman’s terms, it basically means do not put all your eggs in one basket, or in share terms, do not buy shares in three or four car dealers, and nothing else. If spending on big ticket like cars swoons,trading will almost certainly take a beating at all of your picks, and your portfolio will get hammered.

MIX N' MATCH

The alternative is to mix up the industries in which you invest. For example, maybe a single car dealer and say, a bus operator - the assumption being that if people stop buying and using cars so much, maybe everyone will take the bus instead.

In reality getting a proper spread of risk among your shares is a bit more complex and needs a bit more thought than this . For instance, in the example above, what if the oil price soars and a litre of petrol at the local garage doubles? That would surely spell bad news for all forms of transport.

DON’T JUGGLE TOO MANY BALLS

Somewhere between eight and 15 shares is a pretty sensible rule of thumb. Less than eight and you may find yourself too exposed to a disaster at any one company.

More than 15 and you may find keeping a close watch on them all a time-consuming nightmare, where juggling too many balls at once leads to panic-stricken decision making.

You may also run the risk of spreading yourself too thinly, where the gains from your best performing stocks are eroded down by the less successful picks.

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Issue Date: 20 Nov 2017