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Create a diversified portfolio to spread risk from "summary" of Investing Basics for Beginners by Razaq Adekunle
One of the key principles of investing is to spread risk by creating a diversified portfolio. This means not putting all your eggs in one basket. By investing in a variety of different assets, you can reduce the impact that any one investment can have on your overall portfolio. If one investment performs poorly, the impact on your portfolio will be less significant because you have other investments to help balance it out. Diversification can be achieved by investing in different asset classes, such as stocks, bonds, real estate, and commodities. Each asset class behaves differently under different market conditions, so having a mix of assets can help protect your portfolio from volatility. Within each asset class, it is also important to diversify by investing in different companies or securities. This can help reduce company-specific risk, such as poor management decisions or industry-specific challenges. Another way to diversify is by investing in different geographic regions. Political and economic factors can vary greatly from one country to another, so spreading your investments globally can help reduce the impact of a downturn in any one region. Additionally, investing in different industries can also help spread risk. For example, if you have investments in both technology and healthcare companies, a downturn in one industry may be offset by growth in the other. It is important to regularly review and rebalance your portfolio to ensure that it remains diversified. As market conditions change, the performance of different assets may fluctuate, causing your portfolio to become unbalanced. By periodically reassessing your investments and making adjustments as needed, you can maintain a healthy level of diversification and help protect your portfolio from unnecessary risk.- Creating a diversified portfolio is a fundamental strategy for managing risk and maximizing returns over the long term. By spreading your investments across different asset classes, industries, and geographic regions, you can help protect your portfolio from volatility and increase your chances of achieving your financial goals.
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