In the world of investing, there is a common saying that goes, "Don't put all your eggs in one basket." This advice is often given in reference to diversification – the practice of spreading your investments across a range of different asset classes and industries to reduce risk. But diversification can do more than just protect your portfolio from volatility – it can also supercharge your returns by slashing fees.
When you invest in a single stock or asset, you are putting all your money into one basket. If that stock or asset performs poorly, your entire investment could suffer. But by spreading your investments across a range of different assets, you can reduce the impact of any one underperforming asset on your overall portfolio. This diversification helps to smooth out the ups and downs of the market and can lead to more consistent returns over time.
But diversification can also help you save money on fees. When you invest in a mutual fund or exchange traded fund (ETF), you are paying fees to the fund manager for their expertise in selecting and managing investments. These fees can add up over time and eat into your returns. However, by diversifying your portfolio and investing in a range of low cost index funds or ETFs, you can significantly reduce the fees you pay and keep more of your money working for you.
By combining the power of diversification with the cost saving benefits of low cost index funds, you can energize your investments and potentially boost your returns over the long term. So, next time you're reviewing your portfolio, consider how you can diversify across different asset classes and industries while also keeping an eye on fees. Your future self will thank you for it.