For establishing a strategy that tempers potential losses in a bear market , the investment community preaches the same thing that the real estate market preaches for buying a house: Diversification is a battle cry for many financial planners , fund managers, and individual investors alike.

Introduction To Investment Diversification

When the market is booming, it seems almost impossible to sell a stock for any less than the price at which you bought it. When the indexes are on their way up, it may seem foolish to be in anything but equities. But because we can never be sure of what the market will do at any moment, we cannot forget the importance of a well-diversified portfolio in any market condition.

A Lesson in the Importance of Diversification With the luxury of hindsight, we can sit back and critique the gyrations and reactions of the markets as they began to stumble after the '90s, and again in Diversification is not a new concept.

We should remember that investing is an art form, not a knee-jerk reaction, so the time to practice disciplined investing with a diversified portfolio is before diversification becomes a necessity. Here, more than most places, a good offense is your best defense and in general, a well-diversified portfolio combined with an investment horizon of three to five years can weather most storms.

Here are some diversification tips:. Spread the Wealth Equities are wonderful, but don't put all of your investment in one stock or one sector. Create your own virtual mutual fund by investing in a handful of companies you know, trust, and perhaps even use in your day-to-day life. People will argue that investing in what you know will leave the average investor too heavily retail-oriented, but knowing a company or using its goods and services can be a healthy and wholesome approach to this sector.

Consider Index or Bond Funds Consider adding index funds or fixed-income funds to the mix.

Investing in securities that track various indexes make a wonderful long-term diversification investment for your portfolio. By adding some fixed-income solutions, you are further hedging your portfolio against market volatility and uncertainty. Keep Building Add to your investments on a regular basis.

Lump-sum investing may be a sucker's bet.

Mutual Funds and Diversification - How to Diversify

This approach is used to smooth out the peaks and valleys created by market volatility: Know When to Get Out Buying and holding and dollar-cost averaging are sound strategies, but just because you have your investments on autopilot does not mean you should ignore the forces at work. Stay current with your investment and remain in tune with overall market conditions.

Know what is happening to the companies you invest in. Keep a Watchful Eye on Commissions If you are not the trading type, understand what you are getting for the fees you are paying. Some firms charge a monthly fee, while others charge transactional fees.

AAII: The American Association of Individual Investors

Be cognizant of what you are paying and what you are getting for it. Remember, the cheapest choice is not always the best. The Bottom Line Investing can and should be fun.

It can be educational, informative and rewarding. By taking a disciplined approach and using diversification, buy-and-hold and dollar-cost-averaging strategies, you may find investing rewarding - even in the worst of times. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin? This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Here are some diversification tips: Why It Pays To Be A Lazy Investor 3. Examine the relative advantages and disadvantages of utilizing either a concentrated or a diversified investment portfolio strategy.

Reducing risk and increasing returns in your portfolio is all about finding the right balance. It can be rewarding to invest in well-performing companies, but single stocks can present some downside for your portfolio, too. Diversifying may reduce risk, but what does that mean to your overall ROI? If you over-diversify your portfolio, you might not lose much, but you won't gain much either. Here are six forms of diversification you should include in your portfolio.

Take these three steps to achieve and maintain diversification in your investment portfolio. We'll provide a step-by-step introduction on how to invest - and succeed - in this market.

An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation.

A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over No thanks, I prefer not making money.

Guide to Diversification - Fidelity

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