The Importance of Diversification
The Importance of Diversification
Diversifying your investments might
include purchasing various stocks in many different industries. It may include
purchasing bonds, investing in money market accounts, or even in some real
property. The key is to invest in several different areas – not just one.
Over time, research has shown that
investors who have diversified portfolios usually see more consistent and
stable returns on their investments than those who just invest in one thing. By
investing in several different markets, you will actually be at less risk also.
For instance, if you have invested
all of your money in one stock, and that stock takes a significant plunge, you
will most likely find that you have lost all of your money. On the other hand,
if you have invested in ten different stocks, and nine are doing well while one
plunges, you are still in reasonably good shape.
A good diversification will usually
include stocks, bonds, real property, and cash. It may take time to diversify
your portfolio. Depending on how much you have to initially invest, you may
have to start with one type of investment and invest in other areas as time
goes by.
This is okay, but if you can divide
your initial investment funds among various types of investments, you will find
that you have a lower risk of losing your money, and over time, you will see
better returns.
Experts also suggest that you spread
your investment money evenly among your investments. In other words, if you
start with $100,000 to invest, invest $25,000 in stocks, $25,000 in real
property, $25,000 in bonds, and put $25,000 in an interest-bearing savings
account.
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