The Importance of Diversification

“Don’t put all of your eggs in oneof your money. On the other hand, if you have
basket!” You’ve probably heard that overinvested in ten different stocks, and nine are doing
and over again throughout your life…and when itwell while one plunges, you are still in reasonably good
comes to investing, it is very true. Diversification isshape.
the key to successful investing. All successfulA good diversification will usually include stocks,
investors build portfolios that are widely diversified,bonds, real property, and cash. It may take time to
and you should too!diversify your portfolio. Depending on how much you
Diversifying your investments might include purchasinghave to initially invest, you may have to start with
various stocks in many different industries. It mayone type of investment, and invest in other areas as
include purchasing bonds, investing in money markettime goes by.
accounts, or even in some real property. The key isThis is okay, but if you can divide your initial
to invest in several different areas – not justinvestment funds among various types of
one.investments, you will find that you have a lower risk
Over time, research has shown that investors whoof losing your money, and over time, you will see
have diversified portfolios usually see more consistentbetter returns.
and stable returns on their investments than thoseExperts also suggest that you spread your
who just invest in one thing. By investing in severalinvestment money evenly among your investments.
different markets, you will actually be at less risk also.In other words, if you start with $100,000 to invest,
For instance, if you have invested all of your moneyinvest $25,000 in stocks, $25,000 in real property,
in one stock, and that stock takes a significant$25,000 in bonds, and put $25,000 in an interest
plunge, you will most likely find that you have lost allbearing savings account.