Diversification and Asset Allocation
This is the fourteenth part of Investing Basics. You will learn the importance of diversification and how it successfully reducing risk and benefits your investment portfolio.
When investing in assets it is key to diversify. Invest in a plethora of assets: stocks, bonds, indexes, brokerage accounts, IRAs! You may ask “Why do I need to diversify?”. Well, the answer to your question is simple: RISK.
If little Johnny invests his whole trading budget of $10,000 into Apples for All™ and Apples for All™ goes bankrupt or the stock market crashes, Johnny will have lost all his money. But if Johnny invests in Oranges for All™, some government bonds, 401ks, Roth IRAS and other equities then if something financially bad were to happen his money is spread out and safe.
DON’T PUT ALL YOUR EGGS IN THE SAME BASKET!
