“Don’t put all of your eggs in
one basket!” You’ve probably heard that over and over again throughout your
life…and when it comes to investing, it is very true. Diversification is the
key to successful investing. All successful investors build portfolios that are
widely diversified, and you should too!
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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