Here’sterrible investment advice, but I’ll bet you’ve heard it frequently.
Invest incompanies whose products you like.
One studycompared the returns of highly admired companies (as rated by FortuneMagazine) with much lower rated, less admired ones.
Measured overalmost a 25-year period, the returns of the “spurned” companies were higherthan those of the most admired ones.
There’sanother problem with this advice.
If youoverweight your portfolio in companies you know, you won’t be properlydiversified.
There arethousands of public companies you’ve never heard of. Many aren’t located in the U.S.
Diversificationhas been called “the only free lunch in finance”.
It permitsyou to reduce your risk, without sacrificing expected returns.
Enjoy theproducts you like. But those companiesshould not factor into your investment decisions.
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