A Diversified Portfolio

Author: Samantha Fredell
Posted by Consolidebt.Us
Have you ever taken a risk? Maybe you stood up to someone that’s been pushing  you around, or maybe you tried a new dish at a new restaurant that didn’t look so  familiar. There are risks in so many situations that you could take. Did it come out  bad, or did you gain from it?

Taking risks is generally a good thing, but if you can decrease your risk without  decreasing the reward, you will definitely benefit. This includes with investments.  You are taking a risk by investing in a startup company, but you might have a  chance to make a lot of money. Still, if you put all your money in that company, you  are setting yourself up for a potential disaster.

Diversification is an important and useful principle of investing. To diversify your  investments, you simply vary where you put your money. Instead of putting all your  money in the stock of one company, you can invest in several companies’ stock,  invest in mutual funds, buy bonds, and invest in commodities.

Diversity reduces risk. If you invest in one company and they go under, you’ve lost  all your money. If you invest in 5 companies and 1 goes under, you’ve only lost the  money from that 1 company. Of course, you don’t need to assume one will go  under, but 1 or 2 companies might lose money one year while the other 3 or 4  make money, making up for and hopefully going over the loss.

Diversifying the types of investments you own is important, but you can also  diversify the risks of these investments. For younger people in their 20s or 30s,  you are able to take more risks. You can afford to invest in riskier investments  because you have more time to make up the money you lost. While you are  investing in the riskier investments, you have a chance to make a lot more money.

Even while you’re investing in riskier investments, you can still put some money  into less risky investments for security. If you decide to invest in a lot of very high  interest, very risky bonds, you could still lose them all, even if they are different.  Vary your type of investment, investment risk, and investment amounts in order to  reduce your overall risk.

As an investor, your goal should be to build an impressive portfolio. You might  prefer stocks over bonds or mutual funds over commodities. It doesn’t matter what  you choose, just remember to diversify. By not diversifying, you could get yourself  into a lot of trouble.

Think about gambling. Some may say that investing is the same as gambling. That  is up to you how you take it, but the higher your risk is, the closer it is to gambling.  The higher the risk, the more likely you think you’ll lose your money.