Importance of Portfolio Diversification
Introduction
Diversification spreads investments across multiple assets to reduce overall risk, protecting
investors from relying on a single source.
Key Concepts:
- Asset Classes: Stocks, bonds, mutual funds, ETFs, and commodities.
- Sector Diversification: Investing in multiple sectors mitigates
sector-specific risks.
- Geographical Diversification: Investing internationally protects against
local economic downturns.
- Rebalancing: Adjusting allocations to maintain risk/return balance.
Practical Tips:
- Avoid putting all money into one stock or sector.
- Include a mix of long-term and short-term investments.
- Review portfolio at least once a year.
Conclusion:
Diversification doesn’t eliminate risk entirely but reduces exposure while stabilizing returns.
Smart allocation ensures sustainable wealth growth.
