investing guide

What Is The Importance Of A Diversified Portfolio

diversified portfolio

So what is the importance of a diversified portfolio?

Many new investors have problems creating a diversified portfolio when they first start investing. This may simply be because they lack the funds to diversify, or they simply do not understand the importance of diversification.

When investors choose to put all their money into only 1 or 2 individual stocks; they more than likely are going to lose a lot of money.

Individual stocks can turn bad very quickly regardless of their history or reputation. Therefore, if you put all of your money into just a couple of stocks you are gambling more than investing.

Most new investors with limited resources should stick to some sort of fund that at least offers them instant diversification. While diverse funds may not offer that quick "home run" that some individual stocks may offer; your long term odds will be much better. Picking profitable individual stocks consistently takes a lot of practice and knowledge.