Diversification is important for managing risk from "summary" of The Little Book That Builds Wealth by Pat Dorsey
Diversification is a crucial tool for managing risk in an investment portfolio. By spreading your investments across different asset classes, industries, and companies, you can reduce the impact of any one investment performing poorly. Imagine if you had put all your money into a single stock and that company went bankrupt - you would lose everything. However, if you had spread your investments across multiple stocks, bonds, and real estate, the impact of one investment performing poorly would be minimized. When you diversify your portfolio, you are essentially reducing the risk of a catastrophic loss. While diversification cannot eliminate risk entirely, it can help protect your investments from significant downturns in any one sector. By spreading your investments across different asset classes, you are less exposed to the ups ...
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