Diversification is one of the most important things an investor can do.
It can protect your portfolio from getting destroyed by any random fluctuations in the market.
Many investors find a group of stocks that are in the same or related sectors and put all their money in those sectors.
This can make the investor a lot of money but exponentially increases the risk an investor takes on.
Let's say that all your money is in tech stocks.
Then all of a sudden a major piece of legislation comes through that kills the tech business and really slows down the production and hurts profits.
The stocks then tank.
What do you think happens to all those gains you made? What do you think happens to the money you initially invested? It gets taken away by some unfortunate and unexpected news.
If you diversify your portfolio you can avoid a situation like this happening to you.
One strategy you can use is to pick at least one stock in each broad sector category and put at least some of your money in those stocks.
The best way to do this is to own the market leaders in each sector.
This can be expensive and require a lot of homework.
But it is a very affective strategy.
Another strategy that is becoming popular is use Exchange Traded Funds(ETF) to have diversity in your portfolio.
These instruments usually follow a basket of stocks in certain sectors or indices.
Be careful of these as they can hold companies that are horrible.
The best thing to do is sit down with your financial advisor or financial professional and make sure your portfolio is diversified.
If you are managing your own portfolio take special not of how diversified your portfolio is.
It will help you catch any huge and sudden moves in the market.
It is so tempting to put your money into one company or sector that is soaring to new heights but it is also a very foolish thing to do.
It may seem like your missing out on big gains but you'll be thankful you did when there are sudden moves and shifts in the market.
It can protect your portfolio from getting destroyed by any random fluctuations in the market.
Many investors find a group of stocks that are in the same or related sectors and put all their money in those sectors.
This can make the investor a lot of money but exponentially increases the risk an investor takes on.
Let's say that all your money is in tech stocks.
Then all of a sudden a major piece of legislation comes through that kills the tech business and really slows down the production and hurts profits.
The stocks then tank.
What do you think happens to all those gains you made? What do you think happens to the money you initially invested? It gets taken away by some unfortunate and unexpected news.
If you diversify your portfolio you can avoid a situation like this happening to you.
One strategy you can use is to pick at least one stock in each broad sector category and put at least some of your money in those stocks.
The best way to do this is to own the market leaders in each sector.
This can be expensive and require a lot of homework.
But it is a very affective strategy.
Another strategy that is becoming popular is use Exchange Traded Funds(ETF) to have diversity in your portfolio.
These instruments usually follow a basket of stocks in certain sectors or indices.
Be careful of these as they can hold companies that are horrible.
The best thing to do is sit down with your financial advisor or financial professional and make sure your portfolio is diversified.
If you are managing your own portfolio take special not of how diversified your portfolio is.
It will help you catch any huge and sudden moves in the market.
It is so tempting to put your money into one company or sector that is soaring to new heights but it is also a very foolish thing to do.
It may seem like your missing out on big gains but you'll be thankful you did when there are sudden moves and shifts in the market.