Understanding Risk And Return In Mutual Fund Investments
The Myth of Diversification
“Don’t put all your eggs in one basket” is sage advice, yet mutual funds can give a false sense of security. Many actually overlap in their stock holdings, meaning those who think they are diversifying are simply duplicating investments. The truth is, you might be more exposed than you realize…
An analysis by financial experts shows that over 50% of mutual funds frequently share top holdings like Apple or Google, leading to unintended concentrated risk. This could be detrimental during a market downturn. But why does this happen? The reason is not what you’d expect…
Fund managers often follow market trends, creating shadow portfolios that mimic each other. This imitation game can nullify any diversification one hopes to achieve. Are your investments truly diversified, or is it all an elaborate illusion?
For true diversification, one must look beyond the surface. Cross-examining holdings and choosing funds with distinct strategies is vital. Failure to do so can result in financial setbacks. But there’s another factor that can deepen your understanding of risk…