I once saw someone's Mero Share portfolio with 14 different companies in it. They were proud of how "diversified" it was. Eleven of them were hydropower companies.
That's not diversification. That's one bet split into eleven pieces.
What diversification actually means
The idea is simple: don't let one company, one sector or one type of investment decide your whole financial future. If one thing goes badly, the rest should hold up differently.
The key word is differently. If a bad monsoon, a policy change on power purchase agreements or a transmission line delay hits all your holdings at once, owning many of them doesn't protect you.
Questions to ask about your own holdings
- What sectors am I in? Banks, hydro, insurance, microfinance, manufacturing, hotels?
- If interest rates rose sharply, how many of my holdings would suffer?
- Is all my money in shares, or do I also have savings, FDs or other assets?
- If I own mutual funds, what do they hold? Often it's the same big banks I already own directly.
It goes beyond shares
For a lot of Nepali families, the biggest concentration risk isn't in the share market at all. It's land in one place, or every rupee saved in one cooperative. Diversification applies there too.
Don't overdo it
You don't need 40 stocks you can't keep track of. A handful of holdings across genuinely different areas, plus some stable money outside the market, is plenty for most people. Check the mix once or twice a year rather than every time the index moves.
Diversification won't save you from a market-wide crash. It does make it much less likely that one bad company wipes you out.
General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.
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