Diversify your portfolio to minimize risk from "summary" of Profiting With Forex by John Jagerson,S. Wade Hansen
To protect yourself against unnecessary risk, it is essential to diversify your portfolio. This means spreading your investments across different asset classes, industries, and geographical regions. By doing so, you can reduce the impact of any single investment underperforming or failing. Diversification helps to smooth out the peaks and valleys of your portfolio's performance over time.
When you diversify, you are not putting all your eggs in one basket. Instead, you are creating a mix of investments that have low correlations with each other. This way, if one investment is not doing well, others may be performing better, helping to offset any losses. It is like having a safety net in place to catch you if one part of your portfolio takes a hit.
Different asset classes have different levels of risk and return potential. By diversifying your portfolio, you can capture the potential gains from different sources while minimizing the overall risk. For example, if you only invest in one asset class such as stocks, you are exposed to the risk of the stock market. But if you also include bonds, commodities, or currencies in your portfolio, you can reduce the impact of any one market downturn.
Geographical diversification is also important because economic events in one country may not affect another. By investing in international markets, you can spread your risk across different regions and benefit from global economic growth. This can help protect your portfolio from being too heavily impacted by events in a single country.
In summary, diversifying your portfolio is a crucial strategy for managing risk. By spreading your investments across different asset classes, industries, and regions, you can reduce the impact of any single investment underperforming. This approach helps to smooth out the peaks and valleys of your portfolio's performance over time and provides a safety net in case one part of your portfolio takes a hit.
