Question & Ideas Please....

[kanjoh321]

Have a question and is hoping to get your idea. Why is diversification important?



Jessie

[kanjoh]

Got an idea for that.. Diversification is important because it hedges out risk while protecting return. For example, stocks and bonds tend to be inversely correlated. By investing in both, you can get a more consistent return even if one goes down, because the other is usually going up. While this was not as true in the current crisis, it tends to hold true over the long run.



Regards

[BillK]

A great example of diversification is a mutual fund. It may still have some focus on an industry while at the same time spread itself (diversify) across a number of stocks.

That way, as an individual stock is bouncing around that basic group is working forward and upwords as a whole. If one stock fails the rest will hopefully support and move on without it. or at least absorb its failure.

Compared if you were in that single stock, you lose everything rather then just have a small if any bump.

[LuxLiving]

Eggs in one basket. Fall down go boom, landing on basket. Eggs all broken.

Eggs in more than one basket. Fall down go boom. Only eggs in the basket you are currently carrying & fall upon get broken. Eggs in other baskets SAFE.