I know you’ve heard the saying, “Don’t put all your eggs in one basket!” If you are like me, you have heard this saying many times throughout your lifetime. And just like many other times in life, investing is another one of those times when this saying holds true. Diversification is the key to profitable investing. If you want to be a successful investor, you must create a portfolio that is diversified.
When you want to diversify your investment accounts you may want to invest in stocks, bonds, commodities, real estate, etc. Do you see what this means? Proper diversification is investing in diverse areas rather than just one.
History has shown that investors who properly diversified their portfolios consistently seen profitable returns rather than those who chose to put all of their eggs in one basket – so to speak. Not to mention that investing in several different areas also lessens your portfolio risk.
An example is that if you invested all of your money into one particular stock and that stock crashes, you have just lost all of your money. But if you properly “diversified” your investment account and invested in different areas, you will find that while one may crash the others have not and your investment account is fine.
There are many options for proper diversification of one’s account which include stocks, bonds, cash, commodities like gold or silver, and real estate. Don’t worry if you are not able to immediately invest in all of these. Starting with one and then slowly investing in the rest is fine. Just make sure you do spread your investing around.
On the other hand, if you are able to spread your initial investment amongst various types, you will have lowered your risk of losing money on your investments and increased profitability by not putting all your eggs in one basket.