Why Diversify?
August 18, 2022
You’ve probably already heard the phrase “don’t put all your eggs in one basket” used when describing the stock market. This phrase essentially sums up the idea of diversification. But why is this idea so important?
According to Investopedia, “the idea behind diversification is that a variety of investments will yield a higher return.”1 The goal is to help protect yourself from the risk of losing everything in just one investment vehicle. Investing can be a fickle game, and it’s best to disperse your assets throughout multiple vehicles and re-adjust as the markets change.
Here are some helpful tips for diversifying your portfolio:
- Find the right allocation balance for you1
- Consider index or bond funds1
- Add to your investments on a regular basis1
- Know when to get out1
- Keep a watchful eye on commissions1
It is also important to state that there is such a thing as over-diversification. “If adding a new investment to a portfolio increases its overall risk and/or lowers its expected return (without reducing the risk accordingly), it does not serve the goals of diversification.”1 This can happen when adding securities to your portfolio that are closely related.
We understand that constantly monitoring your assets can be overwhelming. The good news is you are not alone. By working with a financial professional, you can have a strategy made to fit your needs. If you have any financial questions or would like to schedule a complimentary consultation, contact us today!