Before starting to discuss the strategy of diversification for stock trading, here are saying that I want to remind you.
"Do not put all your eggs in one basket."
This strategy requires investment in different types of stocks that do not move perfectly in the stock market fluctuations. So you get a diversified portfolio. As I said, "stocks that do not move together," I mean that the stocks you should invest in increases in stock price in both economic boom and recession. Actions must be of different sizes and different industries.
You can tell me,
So that would mean that even in normal market or a booming economy, we must also invest in stocks that are relatively low at this time. Why? Are you crazy?
It serves as a buffer stock so that when recession strikes, as happened a few months ago, you will not lose everything. By having a diversified portfolio, you reduce the variability of your inventory and reduce risks.
Two types of risks
In fact, there are two types of risks when it comes to trading in the stock market. The first is the market risk and the second is a diversifiable risk.
1. Market risk is the risk that is common to all businesses. The risk of recession, as rising commodity costs, etc. This is the kind of risk that can not be diversified even if you have a diversified portfolio.
2. diversifiable risk is the risk that is unique to each company. These include the risk of strikes, bankruptcy, escaped with money managers, businesses, etc. can be diversified away the risk when someone has a diversified portfolio.
Some benefits have Diversified
1. Less Risk! This is the best benefit I can think of. stocks deeper into your portfolio, a more diversified risk.
2. Assure you that even with fluctuations in stock market prices, your portfolio is more secure than if you invest in a particular stock. We give you more assurance that you do not waste your money or not to throw things.
