I always hear people saying that diversifying your investments. I would like to know what exactly it means. I checked many places like wikipedia or the capital asset pricing model. None of them states clearly what exactly diversifying means in real practice.
2006-12-08 06:10:09 · 6 answers · asked by calmarnet 1 in Business & Finance ➔ Personal Finance
Diversity of portfolio is ment to lower your risk of loss, and amount of loss. For example, if we are speaking about buying shares, there are what we call 'blue chip' companies that are very safe to invest in, because they have got a history of stability and strong managment. But with this type of low risk investment, you get low profit margin. The more risky the investment is the higher the profits, the higher chances of losing money. So you have to distribute your money/ investment between the lower risk ones, and a little in the high risk company so that you can balnace profit with loss, if any.
2006-12-08 06:31:22 · answer #1 · answered by Moza 2 · 1⤊ 0⤋
Diversifying your investments means basically "don't put all your eggs in one basket". Example, you would have a percentage of your investments in stocks, bonds and mutual funds. Each investment makes money at different levels,ie,whether the stock market goes up or down. The biggest determining factor, I think, is your age. As you get older , your "risk level" will diminish, because you'll need to keep as much of your income as possible for retirement. For really good advice on where you should invest now, contact a brokerage firm like Merrill Lynch and ask to speak to a money manager.
2006-12-08 06:24:19 · answer #2 · answered by Tweet 5 · 0⤊ 0⤋
Diversifying, in the sense of investments, means holding a variety of different types of investments such as stocks (small portions of ownership in a company), bonds (small portions of ownership in a company's debt), cash, gold, real estate and others. Mutual funds are a diversified investment because they hold a variety different stocks or bonds or a combination of the two. When you buy shares of a mutual fund, you have instant diversification. If you buy shares of one company's stock, and that is the only investment that you own, then you are not diversified and, thus, have a greater risk of losing the money you used to buy that one company's stock.
2006-12-08 06:27:32 · answer #3 · answered by stklotto 4 · 0⤊ 0⤋
You can get mutual funds that automatically invest in enough different types of stocks to give you some diversity. Go to www.schwab.com and put "diversify" in the search, and it will tell you about them. Practically, it means having some money in stocks, some in bonds, some in real estate perhaps. So, when stocks are down, often bonds go up. Real estate might slow for a time then pick up. About ten stocks will give you diversity if they are in different kinds of companies. Try www.moneypaper.com or www.dripinvestor.com, or www.fool.com for more info.
2006-12-08 16:05:43 · answer #4 · answered by Katherine W 7 · 0⤊ 0⤋
It all depends on your age. At 20, you can take stock risks that a 55 year old may not. Try msn.com and find an an investment article in the finance section to help.
2006-12-08 07:06:58 · answer #5 · answered by Val 2 · 1⤊ 0⤋
low return generally means low risk thats what you want
some mutual funds with lots of bonds
I have IAAAX in IRA
on the NASDAQ
2006-12-08 07:56:59 · answer #6 · answered by SWANY 2 · 0⤊ 0⤋