Disadvantages of Portfolio Investment
1. Higher Transaction Cost: The frequent buying and selling of assets in the market within the portfolio can sometimes incur transaction costs such as brokerage fees, commissions, and charges for trading in the exchange market. This might decrease your return value and reduce the profit on the portfolio.
2. Market Downfall: As the market is volatile, even a well-diversified portfolio might face repercussions. During the economic crisis, the price of certain investments might fall tremendously ultimately reducing the value of the portfolio. Thus, although diversification reduces risk, it cannot completely wipe off the adversities of the market.
3. Over-Diversification: When excessive types of investments form the portfolio, then over-diversification occurs. As it is said, too much of anything is bad, the same goes for the case of an investment portfolio. A diverse range of securities can limit the potential profits. Over-diversification instead of boosting protection, might happen to reduce the overall performance of the portfolio by making it difficult for the high-performing investments to improve their returns. Thus, in an investment portfolio, over-diversification should be avoided to maximize profit.