Drawbacks of Investing in a Single Investment product

 Drawbacks of Investing in a Single Investment product

It is common nature for any investment product to experience ups and downs over a period or time or cyclically. If we can predict this easily - in fact it's not. Hard to predict even with enough skill and insider information. 

There are few disadvantages of investing the entire amount in a single investment product or avenue, 

  • Chances of Losing the investment value drastically are very high
  • The problem with receiving the Targeted or Goal amount in a certain period, the amount may be low
  • Investment Risk is very high when invest in a Single product
  • Missing the Opportunity cost of any other investment product which gives good returns
  • False Predictability about the Market or Herd Mentality
Asset Allocation and Diversification - both are very important on Investing Life. This will reduce the investment risk and increase the chances of generating better returns. In the long run, invest in a single instrument is not only the huge risk, but also misses the Inflation and Time. 

With an Asset allocation system, we can manage the risk and get a positive returns at most of the time by diversifying our investment into different avenues - Stocks, Bonds, Gold, Realty, Cash and any other alternative investment schemes. There is no need to predict the Capital Market by the time being.

If an individual had invested based on Asset allocation for the past 30 years (Since 1990), he or she will have negative returns for only four years of the last thirty years. It is noteworthy that any investment plan in a particular year has yielded high returns, however we can't always beat the same in the long term with a single instrument.

For example, although Stocks and Realty investments fell by more than 40 percent in the year 2008, losses would have been lower in the said year if some investment had been made in Gold and Bonds. The Asset allocation system can produce stable (Beyond Inflation) and better returns. At the same time, Diversification in stocks are also good for the Wealth Creation.

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Comments

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