Investing is a game of risk and reward. Most investors believe in the age-old advice from “Don’t put all your eggs in one basket” is a quote from Robert Kiyosaki’s book Rich Dad Poor Dad. This belief drives them to spread their investments across multiple asset classes, hoping to minimize risk. However, the real wisdom lies in another approach—Vinayak Savanur, Founder and CIO of Sukhanidhi Investment Advisors, suggests, “Put all your eggs in one basket and watch it like a hawk.” Is diversification truly the best approach for wealth creation, or is it simply a way to feel safe while settling for average returns?

Understanding Diversification

Diversification is the practice of spreading investments across different asset classes—equities, debt, gold, and real estate—to reduce risk. While this may sound appealing, excessive diversification often leads to average returns, preventing investors from capitalizing on high-growth opportunities. The key question is: Are you truly reducing risk, or are you just limiting your potential for wealth creation?

Historical Performance of Asset Classes in India (Last 10 Years)

To understand why diversification may not always be the best strategy, let’s examine the historical performance of various asset classes:

Clearly, equity investments have delivered significantly higher real returns (adjusted for inflation) than other asset classes over the past decade. Yet, many investors still believe in diversifying across multiple assets, leading to suboptimal performance.

Comparing Different Portfolio Allocations

Let’s analyze different portfolio allocations and their impact on returns:

The numbers indicate that higher equity exposure leads to better long-term gains, while diversification into low-yielding asset classes can drag overall portfolio performance. More importantly, after adjusting for inflation, only equities provide significant real wealth creation.

The Hidden Costs of Diversification

Many investors assume that diversification protects them from losses, but they often overlook the hidden costs:

1. Dilution of Returns – When investors spread their money across multiple low-return asset classes, they miss out on the compounding power of high-growth investments like equities.
2. Inflation Risk – Asset classes like debt and real estate often fail to beat inflation, eroding real purchasing power over time.
3. False Sense of Security – Many investors feel “safe” with a diversified portfolio, but in reality, safety comes at the cost of lost opportunities for substantial growth.
4. Psychological Comfort vs. Real Wealth Creation – Diversification may reduce short-term volatility, but over the long term, it often leads to mediocrity rather than financial success.

The Smarter Way to Invest

Instead of blindly diversifying across multiple asset classes, investors should focus on high-growth areas while managing risk efficiently:

1. Prioritize Equities – Historically, equities have delivered superior real returns. A higher allocation to equities can lead to wealth creation over the long term.
2. Diversify Within Equities – Rather than diversifying across different asset classes, investors should diversify within equities by allocating capital to large, mid, and small-cap stocks.
3. Invest Based on Conviction, Not Fear – Many investors diversify simply to avoid the fear of market downturns. Instead, they should focus on investing in quality assets with strong long-term potential.
4. Monitor Inflation-Adjusted Returns – Returns should always be evaluated after adjusting for inflation. Many so-called “stable” investments fail to preserve real purchasing power.
5. Focus on What You Can Watch Closely – Instead of scattering investments across multiple assets, focus on a few high-potential areas that you can monitor and manage effectively.

Final Thoughts: Are You Really Benefiting from Diversification?

Most investors diversify because they’ve been told it’s the safest path. But the real question is—are you truly building wealth, or just following an illusion of safety?

Instead of blindly following conventional wisdom, investors should make informed decisions based on real data and long-term growth potential. Wealth creation comes from focusing on the right investments, not from spreading money too thinly across low-yielding assets.

Diversification within equities makes sense, but excessive diversification across multiple asset classes often leads to mediocre returns.

Are you ready to rethink your approach and focus on real wealth creation? If yes, get in touch with us on 1800-889-0255. The answer could define your financial future.

For any queries related to equities, get in touch with us at info@sukhanidhi.in or visit our website www.sukhanidhi.in