2007-07-07 01:47:29 · 7 answers · asked by white 1 in Business & Finance ➔ Investing
Diversification simply means spreading out your investments, and consequently your risks. As the old saying goes, "Don't put all of your eggs in one basket." No matter how good a stock may seem unexpected things do happen. By being diversified you don't take as big a loss if your favorite stock takes a dive.
Depending on who is speaking it can mean one of two things.
1. Diversify between stocks and other types of investments, such as bonds and cash (CDs or money market).
2. Diversify your stock investments between different sectors or industries.
You should always maintain some in cash so you don't have to make a hasty sell in an emergency. It also allows you to take advantage of a buying opportunity without having to liquidate another stock first. Which could mean selling at a bad price.
Use bonds if you want to have a safe investment as an alternative to stock market risk.
Always diversify your stocks! Don't just buy several stocks. Be sure to diversify between industries.
2007-07-07 02:30:51 · answer #1 · answered by Mystery 6 · 2⤊ 0⤋
Diversification in the stock market means having a portfolio of a variety of stocks so that the risk of investing is reduced. By having a diversified portfolio, a stock that declines in value can be offset by a stock that increases in value. Proper diversification also means having stocks in a variety of industries. Your portfolio should be well balanced. Diversification can be obtained by as few as 8-10 different stocks, as long as they are properly selected.
2007-07-07 02:29:27 · answer #2 · answered by Anonymous · 1⤊ 0⤋
If you are lucky enough you can put all your money into
one stock in one area such as Walmart ( General Merchandise ) and it will rise rather than fall . Maybe.-------
Diversifying is a theory based on splitting your money and
putting some in Automotive stocks ( like General Motors )--
some in Electronics ( like Dell or Microsoft ) --some in the
Fast Food area ( like MacDonalds ) etc.
This is called a "PORTFOLIO" or bundle of different kinds
of stocks....chances are they won't all drop in value at the
same time !
Most Investment advisors will tell you this is the safer
way to invest.
I wouldn't know. I can lose both ways !
2007-07-07 02:27:12 · answer #3 · answered by ytellu 3 · 1⤊ 0⤋
Realize that the market breaks down into ten major sectors (and continue to branch off). Those ten do not move in lockstep with the S+P 500. If you spread your investments around into perceived sector strength you reduce risk, while at the same time exploit market strength.
2007-07-07 09:09:28 · answer #4 · answered by Lawrence E 4 · 0⤊ 0⤋
If you have one, and ONLY one stock, and it goes "belly up" you are out ALL your money. If you put your money in a "balanced portfolio" instead, when one kind of stock goes down a different one will go up to make up for it. You CAN put all your money in one stock, but you have to be VERY careful and NEVER take your eyes of off that stock - not easy to do. Easier to diversify for SAFETY.
2007-07-07 01:52:30 · answer #5 · answered by Paul Hxyz 7 · 1⤊ 0⤋
Owning positions in stocks of companies that do business in different areas such as finance, gold, electronics, real estate, optics, paper products, ship building, oil etc.
2007-07-10 14:01:42 · answer #6 · answered by trader 4 · 0⤊ 0⤋
it means to spread your money out into many different things...thus a little of everything is far better than alot of one thing
2007-07-09 02:43:21 · answer #7 · answered by zioncanyon 3 · 0⤊ 0⤋