Between buying large units of one stock & diversifying among many stocks with small amount, which one is better?
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Between buying large units of one stock & diversifying among many stocks with small amount, which one is better?
Okay, let's break this down in a way Mama Ngozi would quickly grasp:Imagine Mama Ngozi, who sells her fresh vegetables in the village market, is considering two different ways to invest her hard-earned money. She's thinking if she should buy a large amount of one type of vegetable or diversify by buRead more
Okay, let’s break this down in a way Mama Ngozi would quickly grasp:
Imagine Mama Ngozi, who sells her fresh vegetables in the village market, is considering two different ways to invest her hard-earned money. She’s thinking if she should buy a large amount of one type of vegetable or diversify by buying small amounts of different vegetables.
Now, let me explain it to you like Mama Ngozi:
– If Mama Ngozi decides to buy a large quantity of just one type of vegetable, let’s say tomatoes, she’s putting all her eggs in one basket. If the price of tomatoes falls drastically for some reason, Mama Ngozi could lose a lot of money.
– On the other hand, if Mama Ngozi chooses to diversify her investments by buying small quantities of different vegetables like tomatoes, peppers, and onions, she spreads her risk. If the price of tomatoes falls, but that of peppers and onions rise, Mama Ngozi won’t be as affected because she didn’t put all her money in one vegetable.
So, in simple terms, diversifying among many different vegetables is like not putting all your eggs in one basket. It helps reduce the risk of losing all your money if something unexpected happens in the market.
Just as Mama Ngozi sells different vegetables to cater to different tastes and needs in the market, diversifying among different stocks helps spread your risk and increase your chances of making a profit in the long run.
Therefore, Mama Ngozi, it’s generally better to diversify your investments among many stocks with small amounts rather than putting all your money into just one stock. This way, you are better protected against unexpected losses.
I hope this analogy helps you understand the concept clearly.
See lessFor me, neither option is automatically better. It depends on your amount of money, your knowledge of the companies, your risk tolerance and your investment goal. But if I were a beginner, I would generally prefer diversification rather than putting most of my money into one stock. For example, imagRead more
For me, neither option is automatically better. It depends on your amount of money, your knowledge of the companies, your risk tolerance and your investment goal.
But if I were a beginner, I would generally prefer diversification rather than putting most of my money into one stock.
For example, imagine I have ₦100,000 to invest.
Option 1: I put the entire ₦100,000 into one company.
If that company performs very well, I could make a good return. But if the company has poor results, loses market value or something unexpected happens, a large part of my investment can fall at the same time.
Now imagine I divide the ₦100,000 among five companies:
– Company A: ₦20,000
– Company B: ₦20,000
– Company C: ₦20,000
– Company D: ₦20,000
– Company E: ₦20,000
If Company A falls by 30%, the damage to my entire portfolio is much smaller because only ₦20,000 was exposed to that company.
But diversification doesn’t mean buying 20 or 30 random stocks just because you want to have many companies.
That’s another mistake beginners can make.
For example, if I have only ₦50,000 and buy tiny amounts of 15 different stocks, I may end up owning many companies without actually understanding any of them.
I’d rather own a smaller number of investments that I understand properly, or use a properly managed diversified fund if I don’t yet have the knowledge or capital to build a portfolio myself.
There’s also an important difference between “large units” and “large amount of money.”
A ₦100 stock isn’t necessarily cheaper or better than a ₦1,000 stock simply because I can buy more units of it.
For example:
₦100,000 can buy 1,000 shares at ₦100 each.
It can also buy 100 shares at ₦1,000 each.
What matters is the value of the investment and the potential return, not simply the number of shares you own.
So I wouldn’t think:
“I want to own 10,000 shares.”
I’d think:
“I want to own good assets at sensible prices and manage my risk.”
There is one situation where concentrating in one stock can make sense: if an experienced investor has done extensive research, understands the business extremely well and deliberately accepts the higher risk.
But for someone still learning, I think diversification is generally the safer approach.
A realistic beginner approach could be:
₦100,000 available → ₦20,000 each across 4-5 carefully selected investments, or use a diversified fund rather than trying to pick many individual stocks.
And as the portfolio grows, you can gradually diversify across different sectors and asset classes, not just different companies.
So my simple answer would be:
Don’t chase the largest number of units. Don’t put all your money into one company simply because you believe it will perform well. Build a portfolio that can survive even when one investment doesn’t perform as expected.
The goal isn’t to find the one stock that will make you rich.
The goal is to build wealth without taking unnecessary risks that can set you back badly.
See lessWhich Is Better: Investing Heavily in One Stock or Diversifying? If you have ₦100,000 to invest, should you put everything into one company or spread it across several companies? For most investors, especially beginners, diversification is the safer approach. If you put the entire ₦100,000 into oneRead more
Which Is Better: Investing Heavily in One Stock or Diversifying?
If you have ₦100,000 to invest, should you put everything into one company or spread it across several companies?
For most investors, especially beginners, diversification is the safer approach.
If you put the entire ₦100,000 into one stock and that company loses 30% of its value, your investment falls to about ₦70,000.
But if you spread the ₦100,000 across several quality companies in different sectors, a fall in one stock may be partly offset by better performance in another.
However, diversification does not mean buying dozens of stocks simply because you can.
The goal is to own a reasonable number of quality investments that are not all exposed to the same risks.
A simple way to think about it:
Concentration: Higher potential reward, but higher risk.
Diversification: Lower company-specific risk, with more balanced exposure.
So, unless you have strong knowledge, extensive research, and a clear reason for concentrating your money in one company, spreading your investments is generally the wiser choice.
Do not put all your eggs in one basket. But you also do not need a hundred baskets.
See lessThis depends on your risk appetite, and ability to delay gratification. As beginner, I would advise you start with a stock or plan, be consistent, be patient and monitor your growth. And don't forget delay gratification. See you at the top
This depends on your risk appetite, and ability to delay gratification. As beginner, I would advise you start with a stock or plan, be consistent, be patient and monitor your growth. And don’t forget delay gratification. See you at the top
See lessAs an investor, prudence demands that you track your investment records and activities. So, back to your question, if you are sure you can manage well, track well and that you have shock absorber for risk you may venture into multiple investments diversification. But if you are a beginner; manage weRead more
As an investor, prudence demands that you track your investment records and activities. So, back to your question, if you are sure you can manage well, track well and that you have shock absorber for risk you may venture into multiple investments diversification. But if you are a beginner; manage well to grow big. Don’t forget, it is not how far but how well. See you at the top
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