Diversify your Investment Portfolio!

Many financial economists say that “diversification is the only free lunch one can have in financial markets”. We totally agree! Whether you are a long-term investor or a high frequency trader, you must understand that diversification is very important. Investors who understand and utilize the principles of diversification soon realize its significant benefits. Diversified portfolios have lower volatility and can reduce the adverse consequences of an unexpected bankruptcy. It is much to realize a bankruptcy in a 10-stock portfolio than a bankruptcy in a single-stock portfolio!

Moreover, investors who form diversified portfolios increase the odds of being profitable. More specifically, a portfolio with 10 stocks that are likely to outperform has, on average, a higher probability to outperform that a single-stock portfolio. If you consider yourself as an above average stock picker then you should form portfolios of stocks and not concentrate tour exposure to one or two stocks. The same holds for currency bets or business ventures!

StockTradingCollege.com‘s Asset Allocation and Portfolio Management articles are two topics that you should be aware of if you want to be profitable. Invest a couple of minutes and take a look at investopedia’s Introduction to Diversification. If you are a more technical-oriented reader you will appreciate wikipedia’s entry for Diversification.
 
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