Stay diversified to minimize risk in your portfolio from "summary" of Random Walk Guide To Investing by Burton G Malkiel
Diversification is a key principle in investing. By spreading your investments across different asset classes, industries, and geographic regions, you can reduce the risk of your portfolio. This means that if one investment performs poorly, the impact on your overall portfolio will be minimized because other investments may perform better. One way to achieve diversification is through mutual funds or exchange-traded funds (ETFs) that invest in a wide range of securities. These funds hold a mix of stocks, bonds, and other assets, providing you with exposure to different areas of the market. By investing in these funds, you can benefit from diversification without having to pick individual securities yourself. Another way to diversify your portfolio is by investing in different types of assets, such as stocks, bonds, real estate, and commodities. Each asset class has its own risks and returns, so by holding a mix of them, you can reduce the overall risk of your portfolio. For example, when stocks are performing poorly, bonds may provide stability and vice versa. It is important to regularly review and rebalance your portfolio to ensure that your diversification strategy is maintained. Over time, the performance of different investments may cause your portfolio to become unbalanced. By periodically selling off overperforming assets and investing in underperforming ones, you can bring your portfolio back in line with your diversification goals. In summary, diversification is a powerful tool for managing risk in your portfolio. By spreading your investments across different assets and sectors, you can reduce the impact of any one investment performing poorly. Whether through mutual funds, ETFs, or a mix of asset classes, diversification can help you build a more resilient portfolio that is better positioned to weather market fluctuations.
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