Investing 101: 4 Benefits of Diversification

Investing 101: 4 Benefits of Diversification

Over half of Americans have some sort of investment in the stock market, and it’s no wonder why. Investing is one of the smartest things you can do with your hard-earned money, allowing you to generate income in a passive manner without taking up too much of your time or effort.

That is, so long as you do it right.

Done wrong, investing can be one of the riskiest things you can do. That’s why diversification — spreading your investments across multiple industries and companies — is so important. The benefits of diversification are endless, and having a diversification strategy is pretty much a prerequisite for a successful investment career.

So let’s look at what those benefits are, shall we?

  1. It Minimizes Your Risk of Loss

Picture it: you’ve got a bit of money lying around and you decide to invest it. You give it some thought, and decided that, hey, you really like your new Dell laptop, so you plow all your money into Dell and hope for the best.

And then, for whatever reason, Dell stocks take a hit and suddenly your budding investment has turned into a massive cash sinkhole.

But what if you had some portfolio diversification? If you spread that investment across Dell and a bunch of other companies that have nothing to do with computing, suddenly Dell taking a hit isn’t so dramatic.

  1. It Maximizes Potential For Returns

Now consider the same scenario. You’re big into Dell, and then suddenly Apple stock shoots up because everyone loves the new iPhone. Shame you’re not in on that, right?

Well, you could be. With some diversification in investing, you’re as exposed to positive changes as you are protected from negatives.

  1. Keeps Things Stable

A portfolio with global (check out for more on international investing) and industry diversification is far less prone to volatility than a more single-minded portfolio. That means you can plan ahead and not have to constantly respond to sudden spikes and drops in the market.

After all, peace of mind is priceless.

  1. Saves You Time

This is a big one. Investing is great for working people because it’s a way to generate passive income. You don’t have to toil for long hours over the investment stove, you just put your money into promising businesses and walk away.

Unless, of course, you’re constantly having to keep one eye on your investments because they’re so exposed to risk and volatility. At that point, it becomes a second job. A diversified approach lets you take a ‘set it and forget it’ attitude.

The Benefits of Diversification Are Endless

It doesn’t matter who you are, the benefits of diversification when it comes to security, stability, and downright peace of mind are too colossal to ignore. A good diversification strategy will open you to new rewards, protect you from potential losses, and save you time in which to use your new earnings.

Not bad, right?

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