Ever wondered why you often find yourself trying to outperform the market while some of the seasoned investors seem to be playing safer? As investors the first thing we owe ourselves is to decide what “kind of investor” we will be before we dive into the deep end of the pool. And generally our investment style is governed by the amount of money we are looking to invest.
When you are just starting out, and playing with small amounts of capital – even as low as $200-$500, maybe up to $1000 – you inevitably choose from among stocks that are known to you. Most would start with the usual suspects like Amazon (AMZN), Google (GOOG) or Alphabet Inc., Netflix (NFLX), Apple (AAPL) and try to get their timing right so as to avoid investing at quarterly peak levels. But then you start looking for stocks which may have a higher risk-reward profile such as pharma stocks, many small cap stocks etc. You start looking for more volatility, greater number of people talking about them, more steeper changes in stock sentiments, more analyst action so on and so forth.
But as you invest higher amounts of money, there’s a natural reduction in the propensity to take risk. You begin to diversify. Build three-four different portfolios, each with a different risk profile. You still put some money in volatile stocks but then you begin to invest more in ETFs and further more in safe avenues such as government bonds and Gold. The allocation you create really defines who you are, as an investor. But for the most seasoned investors – who they are determines the allocation of their money.
So this may be a good time to think, at what stage of investing lifecycle do you currently see yourself? And how much money do you intend to invest or are currently investing in the market. There’s a right time for everything, as they say. If you’ve started recently and have got the general hang of investing then no harm looking for multi-baggers – but only if you’re investing money that you can afford to lose. But if you are investing for the long term and doing so with non-trivial investment amounts then do diversify instead of trying to beat the market.
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