Friday, December 24, 2010

The Importance of Diversification by Ravinder Tulsiani

The Importance of Diversification by Ravinder Tulsiani

“Don’t put all of your eggs in one basket!” You’ve probably heard that
over and over again throughout your life…and when it comes to
investing, it is very true. Diversification is the key to successful
investing. All successful investors build portfolios that are widely
diversified, and you should too!

Diversifying your investments might include purchasing various stocks
in many different industries. It may include purchasing bonds,
investing in money market accounts, or even in some real property. The
key is to invest in several different areas – not just one.

Over time, research has shown that investors who have diversified
portfolios usually see more consistent and stable returns on their
investments than those who just invest in one thing. By investing in
several different markets, you will actually be at less risk also.

For instance, if you have invested all of your money in one stock, and
that stock takes a significant plunge, you will most likely find that
you have lost all of your money. On the other hand, if you have
invested in ten different stocks, and nine are doing well while one
plunges, you are still in reasonably good shape.

A good diversification will usually include stocks, bonds, real
property, and cash. It may take time to diversify your portfolio.
Depending on how much you have to initially invest, you may have to
start with one type of investment, and invest in other areas as time
goes by.

This is okay, but if you can divide your initial investment funds
among various types of investments, you will find that you have a
lower risk of losing your money, and over time, you will see better

Experts also suggest that you spread your investment money evenly
among your investments. In other words, if you start with $100,000 to
invest, invest $25,000 in stocks, $25,000 in real property, $25,000 in
bonds, and put $25,000 in an interest bearing savings account.

About the Author: Ravinder Tulsiani is a published author who has
written about personal finance, real estate, self-help and online