The Importance of Diversification
I just recently became re-interested in investing money, and although most people are running scared from the stock market at times like these, I
realize that it can be a truly great time for bargain hunting for securities and boning up one’s retirement portfolio, priming it for the
next bullish economy and stock market. What this means is that you can buy good stocks at a cheap price (of course, depending on what the stock
is), and can enjoy some profits if you choose to cash them in (sell them) when the market again enjoys a strong run.
But that is not the point of this writing, we wanted to talk about the,importance of diversifying one’s investment portfolio, since this
aspect of creating a safer portfolio is important, even in the best of economic times, because it lessens the likelihood that you will lose large
chunks of your retirement fund at a time, or even worse, lose it all in one shot at some point.
It’s like the old cliche goes, you shouldn’t put all your eggs in one basket. Same thing goes for investments. Your investment portfolio
should never just contain one security, or just one type of security. When I say “type” I mean the technology sector, or the retail sector, or all your
stocks shouldn’t just be in the real estate or banking sector. This way, if one sector is broken for a while, your whole investor portfolio
doesn’t completely break down with it.
Unless you feel like you are an incredibly lucky person, all your “eggs” or money, should definitely not all be in one stock. Yes, you may get
incredibly lucky and have that one stock turn out to be the next Berkshire Hathaway, which has hatched many millionaires who started with them as
a fledgling investment, but let’s face it, this is a case that is few and far between, and if the odds were stacked against your one investment you
could potentially lose your entire nest egg in one fell swoop.
Diversifying your portfolio into different stocks and types of investments is pretty easy these days, since there are so many ways to invest and
so many companies that can be purchased on the NYSE publicly and fairly easily, so it is a practice that even the most savvy investors should
adhere to at all times, even when they think they have the hottest stock tip around.
