The conventional wisdom is that diversification is an integral part of successful investing. Although the idea of diversification has been around for centuries (and is mentioned in both the Bible and the Talmud), the modern idea of financial diversification can be attributed to the work of Nobel prize-winning economist Harry Markowitz and his Modern Portfolio Theory. We won't get technical here and we by no means will cover anything in depth, but it's a good idea to realize that too much diversification will prevent a portfolio from achieving great returns.
For most people who are not in the game to get amazing returns (who are in it to protect and grow their money at a reasonable pace), broad diversification is a great idea and will likely protect them. For those individuals who are in the game to make spectacular returns (and who should be able to tolerate more risk), diversification beyond a certain point makes them worse off. I'm not sure exactly where that point is. Some people say ten investments or stocks and some say a little more or a little less. Warren Buffett has stated that six is a good rule of thumb.
Whatever the number, the important thing to understand is that if a portfolio has too many stocks an amazing performance by a single stock gets diluted. If a stock goes up 10x (a ten bagger as Peter Lynch would call it) and it represents only 1% of your portfolio, your portfolio only goes up by 10%. The stock went up 1000% but your portfolio only went up 10%. If you want to make spectacular returns, energy must be focused on picking great businesses to invest in and discipline must be exercised to not overcrowd your portfolio.
Additionally, a part of diversification involves investing in different sectors (eg. energy, healthcare, financials, etc.). However, why would one need to invest in one hundred businesses in every sector? Wouldn't it seem wiser to invest in the best businesses in each sector?
Again, this isn't meant for individuals who dabble in the stock market, who can't tolerate the risk that comes with investing for spectacular returns, or who don't have either the time or the inclination to research businesses in an in-depth way. However, if you want to make great investing returns don't over-diversify and do your best to stay focused and disciplined on high-quality investments.
It's key to not that this entire discussion only applied to advanced and experienced investors - novice investors or investors with a moderate level of knowledge and experience should not attempt to pick individual stocks. Novice investors and moderately-experienced investors will be best served by sticking to good mutual funds and ETFs.
Check out the video below to hear a few words form world-renowned investor Warren Buffett on the topic of diversification:
Gold and silver might be good ways to diversify your portfolio and guard against risk and uncertainty (strategic portfolio risk management and mitigation), but you are mistaking if you make precious metals a very significant part of your portfolio in most cases.
As ultra-successful investor Warren Buffett has stated and as any good investor knows, gold and silver (and pretty much every such precious metal and commodity) are not productive assets - they just sit there and look pretty. Unlike a successful business, they don't make more money, as illustrated by the below example.
If you had $1000 to invest today and you purchased silver bullion with the entire sum, the value of your initial $1000 investment in 10 years would depend solely on the supply and demand for silver. That's it. If you invested that money into buying a share of a successful and profitable business, however, the value of your $1000 investment in 10 years would depend on a lot more than the supply and demand for a share of that business. It would depend on that of course, but it would also depend on the business's management, the innovation that occurred within the business, how effectively the business model and the business's plans were carried out, etc. Over those 10 years, your silver would just be sitting there but the business would be working hard to sell products or services, grow, and become more efficient. It may turn out that the investment in the business was a bad idea, but that wouldn't be because of the nature of the investment. It might be because of other factors such as a recession, depression, poor management, an act of God, etc. If your investment in the silver bullion turned out to be extremely profitable, however, it would only be because of the speculative nature of investing. You would have guessed correctly that market forces would cause an increase in the price of silver. Over those ten years, you silver bullion would have been sitting there, but the business will have been hard at work creating value and serving its customers.
Investing in precious metals and commodities is not a bad idea by any measure, it is just important that you do not place your hard-earned money into an investment or speculative venture without fully understanding what you are doing. It isn't wise, for example, to have 100% of your portfolio in precious metals.
Below is a quote by Warren Buffet that should more eloquently and more effectively illustrate the above lesson:
And now, given the rise of cyrptocurrencies and crypto assets to quasi-mainstream financial assets, we're dedicated to providing quality, relevant, and interesting material on cryptocurrencies and cryptoassets. Articles on Bitcoin, Ethereum, Ripple, Cardano, and many more cryptocurrencies and cryptoassets can be found on Pennies and Pounds - all that in addition to a plethora of information on what cryptoassets are, how the entire crypto industry came to be, blockchain/immutable ledge technology, mining, proof of work, proof of stake, and how to prudently invest in crypto if you are so inclined (based on your risk tolerance and ability to withstand the volatility that will come with a crypto portfolio).