This is one of the question asked by one of the student about Diversification to Warren Buffett. The entire video is available here : http://video.google.com/videoplay?docid=-6231308980849895261 . I strongly recommended to see the video!.
Says Buffett, "If you are not a professional investor, if your goal is not to manage money in such a way that you get a significantly better return than world, then I believe in extreme diversification. I believe that 98 or 99 percent — maybe more than 99 percent — of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs. All they’re going to do is own a part of America. They’ve made a decision that owning a part of America is worthwhile. I don’t quarrel with that at all — that is the way they should approach it."
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