overweighing in high risk, non-diversified funds

Casino effect: winning big loosing big

Very large percentage of risk does not justify the potential reward. The risk is highly disproportionate to overall profit potential.

High risk, non-diversified stock fund category includes domestic and foreign small-cap growth, emerging markets and sector funds. The bond fund category includes emerging markets and certain high-yield funds bearing high risk.These fund types can be appropriate in many portfolios, provided an investor adheres to the principles of effective diversification.

Investor should have different funds with distinct risk/reward objectives within a variety of fund types and reduction in overall risk.

There needs to be percentage limit over acceptance level of high risk, non-diversified funds in investor’s portfolio. Most recommend between 5-30% of total portfolio assets, depending upon choices of aggressive, moderate or conservative risk tolerances.

Letting these high-risk, non-diversified mutual funds not to be a core part of your portfolio but just to be a suitable portfolio supplement is a key.