Diversification: don't put all your eggs in one basket

Diversifying is spreading your money across several investments so that one mistake does not ruin everything. If you own a single company and it goes badly, you lose a lot; if you own twenty and one goes badly, the damage is small and the ones doing well make up for it.

What a real portfolio shows

You can see it with data in the portfolios on this site: the insights section shows the star asset (the one that has gained the most) and the biggest loss. It is normal for some companies to lose 50 % or more while others multiply several times. With enough companies, a few winners can carry the whole portfolio. That is why the site also shows how many assets are in the green.

How many companies?

There is no magic number, but some useful guidelines:

• With one company, your result depends entirely on it.
• With 10 to 20 companies in different sectors, the risk of any single one drops a lot.
• With a broad index ETF you own hundreds of companies in one purchase.

Not only how many, but which

Twenty companies in the same sector are not as diversified as they look: they tend to rise and fall together. Look at:

• Sectors: technology, health care, consumer, financials, energy…
• Size: large stable companies and smaller ones that grow faster.
• Countries and currencies: investing in the US already diversifies you against the peso. See exchange rate.

Each investor page includes a diversification by sector section with the weight of each one.

Concentration and equally weighted positions

Owning 20 companies does not mean you are diversified if a single one is worth half the portfolio. This site measures concentration in two ways:

• Weight of the 5 largest assets: what percentage of the total sits in those five positions.
• Equally weighted positions: how many equally weighted companies your portfolio is equivalent to. For example, if you own 20 companies but the indicator says 8, your risk looks like owning 8 equal companies. The higher, the more spread out.

Simple rules that help

• Set a range per position: Viernes de Invertir builds each company up to an amount (for example, 2,000 to 6,000 pesos) and then moves to the next.
• Do not chase what rose the most just because it rose.
• Once or twice a year, check whether a position grew so much that it dominates the portfolio, and calmly decide whether you want to rebalance.

What matters to get started

• Diversifying reduces the damage of being wrong about one company.
• The number of companies, the sectors and the weight of each one all matter.
• Diversifying does not remove the risk of the whole market; that is what a long horizon is for. See investment risks.