It’s very common for financial experts to come on television, radio, and the internet to advice us to invest only on what we know. Most times such advice are unsolicited for, they come from family members who claim they want us to succeed.
It’s all in the name of protecting us from being duped or losing money to other people. Is investing on only things we know and are sure of the best advice when it comes to investment?
Even the great Warren Buffett, considered by a lot of people to be the best investor of all time, gets it wrong sometimes. One of his most famous pieces of advice is to only invest in what you know, but that obviously might not be the best guidance for the average investor.
Theoritically, it makes a whole lot of sense. After all, you don’t want to tie up your money in a complicated investments you don’t really understand well or know nothing about. The issue is that most of us are not business experts, and it’s nearly impossible to have deep knowledge of hundreds of securities around investments.
“Diversification is key to a good portfolio, and investing in what you know leads to a very un-diversified portfolio,” Britton Gregory said, a certified financial planner and principal of Seaborn Financial. “Instead, invest in a well-diversified portfolio that includes many companies, even ones you’ve never heard of.”
We also remember that same financial experts will advise us sooner or later to take ”risk.” How do we take risk when we are supposed to invest on what we know only? We must stick to Britton Gregory’s advice of investing in a well-diversified portfolio which includes many companies, even ones you’ve never heard of.”
Beware who you seat and take financial advise from.