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Diversify your investments to mitigate risk from "summary" of The Millionaire Next Door by Thomas J. Stanley,William D. Danko
The best approach to investing is to spread your money across a variety of assets. This strategy is often referred to as diversification. By diversifying your investments, you are essentially spreading your risk. If one particular investment underperforms, the impact on your overall portfolio is minimized because you have other investments that may be doing well. Diversification is a way to protect yourself from the volatility of the market. It helps to ensure that you are not overly exposed to the risks associated with any single investment. For example, if you have all your money invested in one company and that company goes bankrupt, you could lose everything. However, if you have your money spread out among multiple companies and industries, the impact of one company's failure is less severe. Another benefit of diversification is that it can help you achieve more consistent returns over time. Different types of investments tend to perform differently in various market conditions. By diversifying, you can potentially offset losses in one area with gains in another. This can help to smooth out the ups and downs of your investment returns and provide more stability in the long run.- It is a prudent strategy that can help you manage risk and potentially improve your overall investment performance. By spreading your money across different assets, you are taking steps to safeguard your financial future and increase the likelihood of achieving your long-term financial goals.
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