Posted on 2nd February 2024 By Peter Higgins 

2. Lack of diversification

“Diversification is an established tenet of conservative investment” – Benjamin Graham

One of the most prevalent mistakes made by investors is a lack of diversification within their portfolio.

Before diversifying, each investor should first assess and attempt to understand underlying risks across their asset allocation, their tolerance to those risks, their time horizon, and their goals.

We are investing in a VUCA world i.e. one which is Volatile, Uncertain, Complex and Ambiguous. There is so much out of our control and the fate of a particular company; its stock can change overnight. For example, Patisserie Valerie, Carillion, Theranos*(privately held), 4D Pharma, Credit Suisse, and the Woodford Equity Income Fund all had experienced unexpected changes to their predicted returns.

Failing to diversify investments across different asset classes, sectors, and geographical regions can result in heightened risk. By spreading investments across a variety of asset classes, investors can reduce the impact of any single investment’s poor performance and potentially enhance their long-term returns. Case in point, many ISA investors are mainly UK-centric investors and this has led to their investment portfolios lacking exposure to US listed stocks which in the main have significantly outperformed UK listed stocks, especially the US best-performing tech behemoths during the past ten years.