Robert Kiyosaki claims in his column on Yahoo! Finance that only amateurs diversify and professional investors should instead focus their investments. He even quotes Warren Buffett on the subject. Fair enough. But, the last time I checked there are just a handful of investors who are as successful as Mr. Buffett and there are probably millions of extremely smart professional investors. So, the odds are stacked against an investor who wants to focus.
Mr. Kiyosaki’s specious argument goes something like this: Mr. Buffett focuses his investments and is successful. Many rookie financial planners suggest diversification and their clients are not wealthy. Therefore, if you want to be wealthy don’t diversify!
Many very smart investors preach the virtues of diversification: Burton Malkiel, Ted Aronson, David Swenson to name just a few. And from my personal experience, beating a low-cost diversified portfolio of index mutual funds or ETFs is extremely difficult. Also, the vast majority of mutual funds, all of them run by professional investors, fail to beat their benchmark indices even before taking taxes into account. Not to mention, the sorry record of individual investors who focused their portfolios on technology and got killed in the bear market. Just don’t forget Mr. Buffett’s advice: “Rule # 1: Don’t lose money. Rule # 2: Don’t forget Rule # 1”.
Also, check out posts on this subject on Investing Intelligently and Consumerism Commentary.
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