Is diversification important to you? Do you know how to measure diversification?
Let’s talk about simple diversification. Better known as “don’t put all your eggs in one basket.”
You’ll do better in a variety of assets because one will surely be going up when another is going down. Yes, successful investing requires more than taking risks to get an expected return. It also means reducing risks that aren’t working.
Avoidable risks include:
- holding too few securities,
- betting on countries or industries,
- following market predictions,
- speculating on “information” from rating services, and
- chasing returns.
To all these, diversification is the antidote. It washes away the random fortunes of individual stocks. It positions your portfolio to capture the returns of broad economic forces. It is the smarter investor’s play.