Inability to Create a Truly

Diversified Portfolio
Submitted To: Dr. Kanwal Iqbal Khan
Submitted By: Muhammad Bilal (146)
 Introduction
• Many investment experts have iterated that market risks
(e.g., currency fluctuations, inflation, foreign policy changes)
arising across a particular sector or asset class is a core
problem for investors while managing their portfolio.

• Over investment in a specific asset class, firm, or sector can

affect the value of an investor portfolio greatly.
 Non Diversified Portfolio
• Pros
i. One is able to fully account for the stocks in hand at any given time and ease of
calculating the returns expected after a short period of time.
ii. Depending on the rewards that the sector is giving, one gets the advantage of
leaping the highest rewards once it is concentrated at any given time.

• Cons
i.The risk factor is very high and in case the sector goes down then all your
investments end up going to the drain.
ii.If your stock crashes, your portfolio crashes.
 How to diversify your investment portfolio

• Everyone needs debt products: When a business owes money to

a lender, that lender can sell the debt to a third party. When another company
buys this debt, they gain the right to instigate collection efforts. This new owner
of the debt hopes to profit off the interest owed.
• Current asset allocation
• Willingness to take risk
• Time period to goal.
 Contd.
• Goal level or individual level.
• Strategic changes in allocation.
• Special rule for first-time investors.
• Don’t ignore other asset classes.
• Don’t over-diversify.
 Things to Avoid During Diversification
• Long-term exposure to commodities.
• Buying foreign funds and stocks.
• Diversifying based on market cap.
• Buying illiquid and high-fee investments.
 Purpose of Diversification
• A diversified portfolio can give decent returns.
• Diversification reduces but doesn’t remove the risk in stock investing.
 Diversification in Investing

Advantages Disadvantages
1. Reduces Risk. 1. Reduces Quality
2. Higher Profits. 2. Too Complicated
3. Indexing
4. Market Risk
5. Below Average Returns
6. Bad Investment Vehicles
7. Lack of Focus or Attention to Your
Portfolio
 Problems while Diversification
• Diversification Double Dip
• Diversification’s Downside Danger
 Proper Diversification
• Allocate your money based on valuation and not some wall street
manufactured formula. That may mean holding more cash when
bargains are not available. Over diversification is common in ETFs and
mutual funds. When purchasing stocks stick to the highest quality
companies priced at valuations that put the odds of success heavily in
your favor.