'Don’t put all your eggs in one basket’ is ancient advice, but it’s still true. Accidents happen, and if all your wealth is tied up in something that falls apart you’ll be facing a large financial setback. The way we hedge against this risk is through diversification. This means that we don’t rely on only one company or one, narrow industry in our portfolio. We spread our investments around and use different asset classes, like stocks and bonds, and different industries, too. It’s true that once in a while a company or industry takes off and gives huge returns, but the chances of being in the right investments at the right time to see those skyrocketing returns is small, and the risks are greater. Instead, we aim to protect ourselves from those huge losses by diversifying our portfolio. We consider accepting smaller, more predictable potential returns over the long-term in the hopes that we are protecting ourselves at the same time. If I can help you think through your future please contact me today and look further on my blog, where you can read more and see more videos like this to help you become an educated investor.
DISCLOSURE: All investing involves risk and the potential to lose principal. Diversification is an investment strategy that can help manage risk within your portfolio but it does not guarantee profits or protect against loss in declining markets.