Why Diversify Your Portfolio?

Investing carries risks for both beginners and experienced professionals. If you are just getting started, you need to learn, above all, that all investments carry some amount of risk. While some investments are riskier than others, none are totally safe. This is exactly why you do not put all of your investments into one stock, bond, or fund which could devastate you financially if it fails.

Simply put, in order to reduce some of the risk involved that comes with investing, your investments portfolio should contain a variety of investments. I’m sure you have heard the old adage, "Never put all of your eggs in one basket." When you diversify your portfolio, it is like putting those eggs into several different baskets, thus protecting them from being totally wiped out by poor market conditions or by unscrupulous characters.

Make sure you create a very diverse portfolio to avoid a huge financial loss with one of your stocks. In spite of the risks, you must feel somewhat confident that your investments are safe. You must be able to foster a sense of security in your investments, otherwise you will not have the confidence to add to your investments and maximize their earning potential. You’ll discover that it’s almost impossible to work on a financial future in which you have no faith.

If that does not convince you to diversify, by all means do it so you can spread your wealth around. In order to make money in the stock market game, you should allow yourself a few risk-taking opportunities. Having all of your funds locked into safe, long-term investments will prevent you from being able to do this. Sometimes taking risk feels much more rewarding and exciting than following a conservative, "safe" strategy. Put another way, diversity helps your portfolio achieve a semblance of balance.

Numerous types of investments exist. You can find an assortment of companies, different business sectors, with many types of stocks, bonds, funds and other investment vehicles; all of which come with their own risks and benefits. You can organize your portfolio in a healthy way, and it will pay off for years to come. Compare your stock portfolio to a college education — if you have a diverse liberal arts background, you will become a more well-rounded person than you would have if you just continued to study one academic area.

If you make this happen with your investment portfolio, then the way you will think about your finances will be more positive and exciting than if you put all of your focus into one area and did the same thing for your whole lifetime. Spend some time looking at your finances, and if you don’t have a variety of investments, it is probably time for you to mix it up a little, depending on your current needs.

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