Stock Portfolio Diversification
Diversification is one of the key components of a successful investment portfolio. Almost all experts advise the avoidance of concentrating all of your investments in one type.
However, many investors forget about diversification once they see a financially attractive stock and concentrate all of their assets in it. Other investors make a similar mistake and being influenced by their emotions fail to listen to their common sense whispering "Diversify".
Many companies have attracted their employees to investing in company stock as part of their retirement plan through the provided matching of contributions. As a result most investors end up concentrating their assets in company stock and forgetting about the importance of diversification.
Investing in your company's stock is not something bad. However, you should own not only your company's stock, because if something bad happens with your company you risk not only losing your job but all of your assets.
Through diversifying your stocks among different industries you decrease to a great extent the risk of losing your money.
You should be cautious when selecting your stocks because you may have chosen different stocks and still have not achieved diversification. For example, you may select stocks of companies that are highly related to one another and as a result a change in one of the industries may affect the rest of them. In such a case it is said that the companies have a high degree of correlation.
Therefore, you should select companies not only from different industries, but also companies that are influenced by different economic influences. An example of a diversified portfolio would be stocks from aerospace manufacturer, food producer and a computer producer. As a result a change in the food industry will no affect the computer industry.
Aside from selecting companies from different industries, you can also diversify among small, mid and large cap stocks. You can also mix your portfolio with growth and value investments as well as foreign stocks. No matter what type of stocks you will select you should remember to include stocks that are not subject to the same market and economic factors.
Rate this article : Low | High |
- The Long-Term Scope of Stocks
- Investing According to Dow Jones Industrial Average
- Allocating for Investing Purposes
- Stock Trader vs Company Investor
- When to Buy and Sell Stocks
- Before You Buy Stocks
- Bull and Bear Market Strategies
- Electronic Trading vs Stock Exchange Trading Floor
- Long-Term Stock Investment vs Short-Term Trading
- Stock Market Prices and Buying Strategies
- Personal Reasons for Selling Stocks
- When to Sell a Stock
- Beating the Market Strategy
- Direct Stock Purchase Options
- Dogs of the Dow Investment Strategy
- Purchasing Your Company’s Stock
- DRP Types and Benefits
- Dogs of the Dow Performance
- Investment Strategy Types
- Common Stock Investing Strategies
- The Warren Buffett Way - Principals for Successful Investment
- Value Investing Basics
- Has the Time for Selling Stocks Come
- Selecting Your Investing Strategy
- Dollar Cost Averaging Benefits
- Determining the Number of Stocks to be Included in Your Portfolio
- Ex-Dividend Date - Why It Matters
- Constructing a Successful Stock Purchase Plan
- Understanding After-Hours Trading
- Strategies to Deal with a Down Market
- Stock Market Day Trading
- Strategies to Deal with a Weak US Dollar
- Buying Stock on Margin
- Stock Price Forecast
- Stock Option Strategies
- SEC Order-Handling Rules
- Stock Portfolio Balance Maintenance Techniques
- Short Interest Ratio Monitoring
- Holding Your Securities: Physical Certificate
- Holding Your Securities: Street Name Registration
- Holding Your Securities: Direct Registration
- Management of Investment Decisions Through Stock Screens
- Direct Stock Purchase Plans
- Down Market and Discounted Stock Opportunities
- What Investors Need to Know about After-Hours Trading
- When to Apply Averaging Down
- What Investors Need to Know about Auto-Trading Programs
- Financial Analysts: NYSE and NSAD Rules and Disclosures
- Insider Trading Tracking
- Asset Allocation – Choosing the Best Allocation Strategy
- Investing in Equity-Indexed Annuities Explained
- The Pros and Cons of Exchange-Traded Funds
- Prepaid Tuition Plans versus College Savings Plans
- Characteristics of Variable Annuity Products
- Diversification of Assets
- Rebalancing Your Assets
- Cross-Market Trading Circuit Breakers
- Margin Requirements for Pattern Day Traders